Measuring speculation beyond day trading and bets on lottery-like stocks
(2024) International Review of Financial Analysis — Vol. 96, n° A, p. 103632 (2024)
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- 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.
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Citations
De Bondt, W., De Winne, R., & D’Hondt, C. (2024). Measuring speculation beyond day trading and bets on lottery-like stocks. International Review of Financial Analysis, 96(A), 103632. https://doi.org/10.1016/j.irfa.2024.103632 (Original work published 2024)