FIN-04-012 |
NYU Stern School of Business |
May 2004 Revised September 2004
Ron Kaniel, Gideon Saar and Sheridan Titman
ABSTRACT
This paper investigates a unique dataset that enables us to determine the aggregate buy and sell volume of
individual investors for a large cross-section of NYSE stocks. We find that individuals trade as if they are
contrarians, and that the stocks that individuals buy exhibit positive excess returns in the following month.
These patterns are consistent with the idea that risk-averse individuals provide liquidity to meet institutional
demand for immediacy. We further examine the relation between individual investor sentiment and short-horizon
(weekly) return reversals that have been documented in the literature. Our results reveal that individual
investor sentiment predicts future returns, and that the information content of investor sentiment is distinct
from that of past returns or past volume. Furthermore, the trading of individuals predicts weekly returns in the
post-2000 era for stocks of all sizes, while past return seems to have lost its predictive power for all but
small stocks over the same time period. Lastly, we note that there is very little cross-sectional correlation of
our individual sentiment measure across the stocks in our sample.
Ron Kaniel
Institution: Faqua School of Business, Duke University
Phone: (919) 660-7656
Email: ron.kaniel@duke.edu
Gideon Saar
Institution: Stern School of Business, New York University
Phone: (212) 998-0318
Fax: (212) 995-4233
Email: gsaar@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~gsaar/
Sheridan Titman
Institution: McCombs School of Business, University of Texas at Austin
Phone: (512) 232-2787
Email: Sheridan.Titman@mccombs.utexas.edu
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