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Individual Investor Trading and Stock Returns





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    • Ron Kaniel is from the Fuqua School of Business, Duke University. Gideon Saar is from the Johnson Graduate School of Management, Cornell University. Sheridan Titman is from the McCombs School of Business, University of Texas at Austin. We wish to thank Shuming Liu for dedicated research assistance. We are grateful for comments from an anonymous referee, Robert Battalio, Simon Gervais, John Griffin, Larry Harris, Joel Hasbrouck, Roni Michaely, Terry Odean, Maureen O'Hara, Lei Yu, and seminar (or conference) participants at Cornell University, Duke University, INSEAD, London Business School, New York University, Ohio State University, Rice University, University of Notre Dame, Yale University, and the American Finance Association meetings. This research began while Saar was on leave from New York University and held the position of Visiting Research Economist at the New York Stock Exchange. The opinions expressed in this paper do not necessarily reflect those of the members or directors of the NYSE.


This paper investigates the dynamic relation between net individual investor trading and short-horizon returns for a large cross-section of NYSE stocks. The evidence indicates that individuals tend to buy stocks following declines in the previous month and sell following price increases. We document positive excess returns in the month following intense buying by individuals and negative excess returns after individuals sell, which we show is distinct from the previously shown past return or volume effects. The patterns we document are consistent with the notion that risk-averse individuals provide liquidity to meet institutional demand for immediacy.