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Correlated Trading and Returns

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Author Info
DANIEL DORN
GUR HUBERMAN
PAUL SENGMUELLER

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Abstract

A German broker's clients place similar speculative trades and therefore tend to be on the same side of the market in a given stock during a given day, week, month, and quarter. Aggregate liquidity effects, short sale constraints, the systematic execution of limit orders (coordinated through price movements) or the correlated trading of other investors who pick off retail limit orders do not fully explain why retail investors trade similarly. Correlated market orders lead returns, presumably due to persistent speculative price pressure. Correlated limit orders also predict subsequent returns, consistent with executed limit orders being compensated for accommodating liquidity demands. Copyright 2008 by The American Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2008.01334.x
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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 63 (2008)
Issue (Month): 2 (04)
Pages: 885-920
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Handle: RePEc:bla:jfinan:v:63:y:2008:i:2:p:885-920

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dorn, Daniel & Huberman, Gur, 2007. "Preferred Risk Habitat of Individual Investors," CEPR Discussion Papers 6532, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Foucault, Thierry & Themar, David & Sraer, David, 2008. "Individual investors and volatility," Les Cahiers de Recherche 899, HEC Paris. [Downloadable!]
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