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Measuring speculation beyond day trading and bets on lottery-like stocks

Author

Listed:
  • De Bondt, Werner

    (DePaul University)

  • De Winne, Rudy

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

  • D’Hondt, Catherine

    (Université catholique de Louvain, LIDAM/LFIN, Belgium)

Abstract

We offer a new metric of stock market speculative intensity: the proportion of share purchases that are swiftly reversed, i.e., sold within a short time window. An example of this metric is a 14-day trading horizon. We use it to identify retail traders who aim for quick profits. Based on a vast set of trading accounts in Belgium (2003-2012), we observe that the scale of quick round-trip trading is far above what would be seen with a single focus on day trading. Simply put, amateur speculation is not limited to day traders. Measuring speculative trading through quick round-trip transactions delivers a variety of insights. Amateur speculators are more likely to be male, younger, with lower sophistication and lower levels of wealth. They hold concentrated portfolios and focus their efforts on only a few stocks at a time. They earn low returns, and they are prone to the disposition effect. They are liable to bet on lottery-like stocks, and their passion for trading is persistent.

Suggested Citation

  • De Bondt, Werner & De Winne, Rudy & D’Hondt, Catherine, 2024. "Measuring speculation beyond day trading and bets on lottery-like stocks," LIDAM Reprints LFIN 2024009, Université catholique de Louvain, Louvain Finance (LFIN).
    • Handle: RePEc:ajf:louvlr:2024009
    DOI: https://doi.org/10.1016/j.irfa.2024.103632
    Note: In: International Review of Financial Analysis, 2024, vol. 96(A), 103632
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    References listed on IDEAS

    as
    1. Mark S. Seasholes & Ning Zhu, 2010. "Individual Investors and Local Bias," Journal of Finance, American Finance Association, vol. 65(5), pages 1987-2010, October.
    2. D’Hondt, Catherine & De Winne, Rudy & Merli, Maxime, 2021. "Do retail investors bite off more than they can chew? A close look at their return objectives," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 879-902.
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    More about this item

    Keywords

    Amateur speculators ; retail traders ; short-term trading ; day trading ; gambling;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G40 - Financial Economics - - Behavioral Finance - - - General

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