Advanced Search
MyIDEAS: Login

Commonality in individuals' trading: A systematic path between behavioral bias and expected returns

Contents:

Author Info

  • Chae, Joon
  • Yang, Cheol-Won
Registered author(s):

    Abstract

    This paper investigates whether there is commonality in the trading of individual investors. To test for the existence of trading commonality, we apply three different methods employed in assessments of commonality in liquidity. Using actual individual trading in the Korean stock market, we demonstrate the strong commonality in individual trading. Additionally, we find evidence that commonality in individual trading predicts future stock returns, and its' predictability is significant in medium-size stocks. The Korean market also shows strong commonality in liquidity, but it has little relation to commonality in individual trading in explaining stock returns.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X12000534
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 21 (2013)
    Issue (Month): 1 ()
    Pages: 1008-1023

    as in new window
    Handle: RePEc:eee:pacfin:v:21:y:2013:i:1:p:1008-1023

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Commonality; Individual trading; Stock return; Predictability; Liquidity;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Mark Grinblatt & Matti Keloharju, 2000. "What Makes Investors Trade?," Yale School of Management Working Papers ysm146, Yale School of Management, revised 01 Nov 2001.
    2. Shapira, Zur & Venezia, Itzhak, 2001. "Patterns of behavior of professionally managed and independent investors," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1573-1587, August.
    3. Joshua D. Coval & Tyler Shumway, 2005. "Do Behavioral Biases Affect Prices?," Journal of Finance, American Finance Association, vol. 60(1), pages 1-34, 02.
    4. Kent D. Daniel, 2001. "Overconfidence, Arbitrage, and Equilibrium Asset Pricing," Journal of Finance, American Finance Association, vol. 56(3), pages 921-965, 06.
    5. Robin Greenwood & Stefan Nagel, 2008. "Inexperienced Investors and Bubbles," NBER Working Papers 14111, National Bureau of Economic Research, Inc.
    6. Brad M. Barber & Terrance Odean & Ning Zhu, 2009. "Do Retail Trades Move Markets?," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 151-186, January.
    7. Alok Kumar & Charles M.C. Lee, 2006. "Retail Investor Sentiment and Return Comovements," Journal of Finance, American Finance Association, vol. 61(5), pages 2451-2486, October.
    8. Charles Lee & Andrei Shleifer & Richard Thaler, 1990. "Investor Sentiment and the Closed-End Fund Puzzle," NBER Working Papers 3465, National Bureau of Economic Research, Inc.
    9. Simon Gervais & Terrance Odean, . "Learning To Be Overconfident," Rodney L. White Center for Financial Research Working Papers 05-97, Wharton School Rodney L. White Center for Financial Research.
    10. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
    11. Hasbrouck, Joel & Seppi, Duane J., 2001. "Common factors in prices, order flows, and liquidity," Journal of Financial Economics, Elsevier, vol. 59(3), pages 383-411, March.
    12. Huberman, Gur & Halka, Dominika, 2001. "Systematic Liquidity," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 24(2), pages 161-78, Summer.
    13. Barber, Brad M. & Odean, Terrance & Zhu, Ning, 2009. "Systematic noise," Journal of Financial Markets, Elsevier, vol. 12(4), pages 547-569, November.
    14. Ravi Jagannathan & Zhenyu Wang, 1996. "The conditional CAPM and the cross-section of expected returns," Staff Report 208, Federal Reserve Bank of Minneapolis.
    15. Petkova, Ralitsa & Zhang, Lu, 2005. "Is value riskier than growth?," Journal of Financial Economics, Elsevier, vol. 78(1), pages 187-202, October.
    16. John Y. Campbell, 1995. "Understanding Risk and Return," Harvard Institute of Economic Research Working Papers 1711, Harvard - Institute of Economic Research.
    17. Lo, Andrew W & MacKinlay, A Craig, 1990. "When Are Contrarian Profits Due to Stock Market Overreaction?," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 175-205.
    18. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, vol. 89(5), pages 1279-1298, December.
    19. Locke, Peter R. & Mann, Steven C., 2005. "Professional trader discipline and trade disposition," Journal of Financial Economics, Elsevier, vol. 76(2), pages 401-444, May.
    20. Grinblatt, Mark & Keloharju, Matti, 2000. "The investment behavior and performance of various investor types: a study of Finland's unique data set," Journal of Financial Economics, Elsevier, vol. 55(1), pages 43-67, January.
    21. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    22. William N. Goetzmann & Alok Kumar, 2005. "Why Do Individual Investors Hold Under-Diversified Portfolios?," Yale School of Management Working Papers ysm454, Yale School of Management.
    23. Lei Feng & Mark Seasholes, 2005. "Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?," Review of Finance, Springer, vol. 9(3), pages 305-351, 09.
    24. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2000. "Commonality in liquidity," Journal of Financial Economics, Elsevier, vol. 56(1), pages 3-28, April.
    25. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04.
    26. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    27. Ron Kaniel & Gideon Saar & Sheridan Titman, 2008. "Individual Investor Trading and Stock Returns," Journal of Finance, American Finance Association, vol. 63(1), pages 273-310, 02.
    28. Andrea Frazzini, 2006. "The Disposition Effect and Underreaction to News," Journal of Finance, American Finance Association, vol. 61(4), pages 2017-2046, 08.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:21:y:2013:i:1:p:1008-1023. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.