Retail Investor Sentiment and Behavior

Retail Investor Sentiment and Behavior
Author: Matthias Burghardt
Publisher: Springer Science & Business Media
Total Pages: 170
Release: 2011-03-16
Genre: Business & Economics
ISBN: 3834961701

Using a unique data set consisting of more than 36.5 million submitted retail investor orders over the course of five years, Matthias Burghardt constructs an innovative retail investor sentiment index. He shows that retail investors’ trading decisions are correlated, that retail investors are contrarians, and that a profitable trading strategy can be based on these aggregated sentiment measures.

(Un)skilled Leveraged Trading of Retail Investors

(Un)skilled Leveraged Trading of Retail Investors
Author: Stephan Meyer
Publisher:
Total Pages: 33
Release: 2013
Genre:
ISBN:

We study the trading behavior of retail investors in the market of leveraged bank-issued retail derivatives designed to trade excessively, speculate and gamble on ongoing trends and market movements. We analyze whether retail investors have private information and benefit disproportionately or whether they gamble. We answer this question along three dimensions: (i) profitability, (ii) news trading, and (iii) sensitivity to implicit trading costs. We distinguish derivatives by the type of underlying (index vs. individual stocks). We find that raw returns are negative for derivatives with stock as underlying, and only partially positive for those with index as underlying. Nevertheless, risk-adjusted returns show a poor performance with sharpe ratios below one. We show that retail investors are attracted by news, but do not have private information prior to news events. Finally, we categorize investors according to their sensitivity to implicit trading costs. We find that non-sensitive investors perform worse than sensitive investors.

The Optimal Demand for Retail Derivatives

The Optimal Demand for Retail Derivatives
Author: Nicole Branger
Publisher:
Total Pages: 36
Release: 2008
Genre:
ISBN:

It has been shown that investors can benefit from including derivatives into their portfolios. For retail investors, however, a direct investment in derivatives is often too complicated. Investment certificates offer a potential solution to this problem. We analyze if retail investors who buy and hold their portfolio for one year can indeed benefit from an investment in these certificates. We use a model with stochastic volatility and jumps calibrated to the German stock market index DAX. We find that the benefit of investing in typical retail products is equivalent to an annualized risk-free excess return of at most 35 basis points for a CRRA investor with a low risk aversion. If we take transaction costs into account, this number reduces to at most 14~bp. In terms of the types of contracts, we find that discount certificates perform best, while more sophisticated certificates, in particular those with knock-in or knock-out features, should often not be held by investors at all. Therefore, standard preferences cannot explain the large observed demand for investment certificates.

Unlocking the Equity Market

Unlocking the Equity Market
Author:
Publisher:
Total Pages: 0
Release: 2023-10-06
Genre:
ISBN:

In 'Unlocking the Equity Market: Understanding Retail Investor Behavior, Biases, and Their Market-Wide Impacts, ' readers embark on a fascinating exploration of the intricate world of retail investing. This insightful work delves into the psychology and behavior of retail investors, unraveling the biases and decisionmaking processes that shape the equity market. The narrative unfolds as a deep dive into the minds of retail investors, dissecting their behavior and exploring the psychological biases that influence their market interactions. Through comprehensive research and real-world examples, the book illuminates the complexities of investor sentiment, shedding light on how emotions, cognitive biases, and social factors impact trading decisions. Readers are guided through the various cognitive biases that often lead to irrational market behavior, from overconfidence and loss aversion to herding and anchoring. The book emphasizes the profound impact of these biases not only on individual investors but also on market-wide trends, showcasing how collective retail investor behavior can influence stock prices and market volatility. 'Unlocking the Equity Market' serves as a valuable resource for both novice and experienced investors, offering insights into the underlying factors that drive market fluctuations. It equips readers with a deep understanding of retail investor behavior, enabling them to navigate the equity market with a more informed and analytical perspective. As readers delve into the complexities of investor biases, they gain valuable insights that can help them make more rational and strategic investment decisions, unlocking the potential for success in the ever-changing world of equity trading.

Trading Behaviors and Retail Investors on Equity Markets

Trading Behaviors and Retail Investors on Equity Markets
Author: Hui Lu
Publisher:
Total Pages: 0
Release: 2022-11-24
Genre: Business & Economics
ISBN: 9786481707935

The first chapter utilizes seventeen years of comprehensive daily portfolio and trading data to analyze the relative trading performance of the universe of households, all domestic financial institutions, and all foreign institutions, in the Finnish market. I introduce a new methodology, dubbed "holding-period-invariant" portfolios, which is demonstrably superior to the conventional calendar-time methodology.

Activist Retail Investors and the Future of Financial Markets

Activist Retail Investors and the Future of Financial Markets
Author: Usman W. Chohan
Publisher: Taylor & Francis
Total Pages: 256
Release: 2023-04-17
Genre: Business & Economics
ISBN: 100086023X

Contemporary financial markets have been characterized by sociocultural phenomena such as "meme stocks", the Gamestop short squeeze, and "You Only Live Once (YOLO) trading". These are movements led by small-scale retail investors banding together to participate forcefully in financial markets through decentralized but coordinated actions. This book deploys many different subdisciplines to explore the recent ‘power grabbing’ of retail investors and the online environment that enables them to join the ranks of major financial players, and participate in contemporary capitalism. It offers multiple perspectives on the genesis, role, motivations, power, and future prospects of retail investors as a force in contemporary financial markets. Drawing upon the insights of authors hailing from many different countries, the book frames YOLO capitalism through numerous angles that help to explain the context and the importance of activist retail investors in modern financial markets, and thereby explore the possibilities of a transformed financial future with much wider small-scale participation. The book assesses the potential of online - and other - communities in enabling global coordination in impacting or even driving financial and crypto markets, and the challenges that come with it and weighs the competing narratives both positive and negative regarding YOLO capitalism. It strikes a balanced assessment of their legal, cultural, behavioural, economic, and political roles in modern finance. This book will be of interest to a multidisciplinary and interdisciplinary audience of scholars in financial markets, financial regulation, political economy, public administration, macroeconomics, corporate governance, and the philosophy and the sociology of finance.

Limit Order Behaviour and Execution Costs

Limit Order Behaviour and Execution Costs
Author: Danny Lo
Publisher:
Total Pages:
Release: 2016
Genre:
ISBN:

This study compares the limit order behaviour and execution costs of retail and non-retail investors to examine the effectiveness with which these two groups of investors manage the trading process. Fundamental differences are found in the trading behaviours of the two groups, consistent with their inequalities in access to trading technology. In contrast to retail investors, non-retail investors use more order revisions, react more quickly to liquidity opportunities and exploit fleeting orders to search for latent liquidity. Institutional investors are found to be more responsive to non-execution risks while market makers are most responsive to changes in the cost-of-immediacy. We also find evidence to suggest some non-retail investors are imposing adverse selection costs on the limit orders of retail investors, but our results fall short of supporting the view that retail investors are severely disadvantaged in the world of electronic trading.

Investment Management for Retail Investors

Investment Management for Retail Investors
Author: Sujoy Dhar
Publisher:
Total Pages: 19
Release: 2013
Genre:
ISBN:

There are several alternative avenues by which retail investors can transform their savings into productive investment. They can invest in money market, share market, derivative market, bond, mutual fund, insurance, gold and bullion and real estate. The objective of a rational investor is to maximize the return subject to a given risk or minimizing the risk subject to a given return. Different investment instruments can be compared in terms of return, risk, tax shelter, marketability and convenience of transaction. The article discusses different attributes of investment on the basis of which an investment is evaluated. The crucial attributes are rate of return, risk, marketability, tax shelter, convenience etc. It describes different types of money market instruments. It provides basic guidelines to the investor how to invest in share market so that subject to minimum risk, a moderate return is ensured. Before investing in a stock, technical analysis and fundamental analysis must be done so that it is easy to conclude whether the share is under priced or overpriced. The article presents the concept of different types of derivatives and it focuses on how derivatives can be correlated with the shares by which hedger can hedge their risk, speculator can earn profit and arbitrageur can earn risk less profit due to price differentials. It depicts different types of alternative investment strategies such as mutual funds, bonds, non marketable financial assets, real estate market as well as market of precious stones. It shows how decision tree can be used in formulating the investment decision.

RETAIL TRADING IMPACTS ASSET PRICES

RETAIL TRADING IMPACTS ASSET PRICES
Author: Li T'Ien
Publisher:
Total Pages: 0
Release: 2024-01-16
Genre: Business & Economics
ISBN: 9786186452703

Social-media-fueled retail trading poses new risk to institutional investors. This paper examines the origin and pricing of this new risk. I first present stylized facts on prices, quantities, and retail investors' beliefs for a set of meme stocks. I establish that aggregate fluctuations in retail sentiment originated from a growing and concentrated social network. The retail sentiment fluctuations induced changes in investor composition. As sentiment increased throughout 2020 and 2021, retail investors built up long positions, while price- sensitive long-only institutions have gradually exited the market since early 2020. Short interest stayed high in 2020, but dropped sharply following the price surge in January 2021 and remained low for the rest of the year.