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Informed retail investors: Evidence from retail short sales

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  • Gamble, Keith Jacks
  • Xu, Wei

Abstract

Our study suggests that despite the enforcement of insider trading laws, there are still some investors trading on their private information. Using account-level information, we show that some retail investors seem to be informed about particular stocks. When they sell short these stocks, they earn an alpha of 15%; when they purchase these stocks, they earn an alpha of 27%. Other short sales and purchases by the same investor do not earn significant alpha. These informed trades are rare and further evidence suggest that these informed retail trades are motivated by private information rather than trading skill.

Suggested Citation

  • Gamble, Keith Jacks & Xu, Wei, 2017. "Informed retail investors: Evidence from retail short sales," Journal of Empirical Finance, Elsevier, vol. 40(C), pages 59-72.
    • Handle: RePEc:eee:empfin:v:40:y:2017:i:c:p:59-72
    DOI: 10.1016/j.jempfin.2016.11.004
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