FIN-04-023 |
NYU Stern School of Business |
October 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
Email: ron.kaniel@duke.edu
Telephone: (919) 660-7656
Gideon Saar
Institution: Stern School of Business, New York University
Email: gsaar@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~gsaar
Telephone: (212) 998-0318
Sheridan Titman
Institution: McCombs School of Business, University of Texas at Austin
Email: Sheridan.Titman@mccombs.utexas.edu
Telephone: (512) 232-2787
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