Individual Investors’ Intensive Trading and Stock Returns: Evidence from Tehran Stock Exchange TSE

Abstract

An extensive literature going back to De Long et al. (1990) views individual investors as noise traders with low information and behavioral biases, who can move prices away from the intrinsic value. The goal of this study was to assess the interaction between individual investors and stock returns in the Iranian stock market along the following dimensions: First, the relation between the individuals’ intensive trading and the past returns was evaluated to see whether those investors were momentum or contrarian traders. Second, the predictability of subsequent short-term returns by the individual investors’ intensive trading was investigated. The individuals were found to have reacted to high past returns with more trading in the consecutive weeks. More specifically, the short-term returns of stocks could predict the eruption in the individuals’ intensive trading, but not necessarily their directions (buying or selling). However, contrary to some studies, no relation was found between the short-term returns and the individual investors’ intensive trading.

Keywords

• trading behavior
• individual investors
• short-term returns
• momentum and contrarian trading
• emerging markets