نویز سیستماتیک

We analyze trading records for 66,465 households at a large discount broker and 665,533 investors at a large retail broker to document that the trading of individuals is highly correlated and persistent. This systematic trading of individual investors is not primarily driven by passive reactions to institutional herding, by systematic changes in risk-aversion, or by taxes. Psychological biases likely contribute to the correlated trading of individuals. These biases lead investors to systematically buy stocks with strong recent performance, to refrain from selling stocks held for a loss, and to be net buyers of stocks with unusually high trading volume.

The buying and selling behavior of individual investors is systematic. The contemporaneous correlation in which stocks individual investors are buying or selling is high. For our samples of 66,465 investors at a large national discount broker and 665,533 investors at a large retail broker, this correlation is about 75%. What investors buy this month is also correlated with future buying. We document up to 24 months of positive lagged correlations in investors’ purchase and sale decisions. The correlated trading of individual investors is not likely to be driven by factors previously proposed to explain institutional herding, such as principal agent concerns, informational cascades, or rational responses to shared information. Neither limit orders, taxes, nor systematic shifts in risk-aversion explain a large part of this correlated trading. Psychologically motivated trading behavior may account for much of the correlation in individual investor buying and selling. Investors tend to buy stocks with strong past returns, which is consistent with the representativeness heuristic. Investors tend to sell stocks with strong recent past returns, which is consistent with the disposition effect. And investors buy stocks with high abnormal trading volume, which is consistent with the theory that due to limited attention, individual investors are likely to be net buyers of attention-grabbing stocks. The influence of one individual investor on asset prices is negligible. However, we find that buying and selling decisions of individuals are highly correlated and they cumulate over time. Thus, individual investors, sometimes referred to as noise traders, do have the potential to affect asset prices because their noise is systematic.