| Abstract: | We study the trading of individual investors using transactiondata and identifying buyer- or seller-initiated trades. We documentfour results: (1) Small trade order imbalance correlates wellwith order imbalance based on trades from retail brokers. (2)Individual investors herd. (3) When measured annually, smalltrade order imbalance forecasts future returns; stocks heavilybought underperform stocks heavily sold by 4.4 percentage pointsthe following year. (4) Over a weekly horizon, small trade orderimbalance reliably predicts returns, but in the opposite direction;stocks heavily bought one week earn strong returns the subsequentweek, while stocks heavily sold earn poor returns. |
