The wisdom of retail traders: Study shows retail investors can predict future stock returns
Wednesday, April 25, 2012 - 13:30
in Mathematics & Economics
A forthcoming paper in the Journal of Finance by Professor Paul Tetlock, Roger F. Murray Associate Professor of Finance at Columbia Business School, and Eric Kelley, Assistant Professor, Finance, the Eller College of Management at the University of Arizona, finds that retail investors' are not as unsophisticated as many think: they can actually predict future stock returns. The study shows that retail traders buy in advance of price increases and sell in advance of price decreases that occur over the next month. This research is of particular interest to institutional and retail investors whose profits depend on monthly stock price movements. Columbia Business School's Ideas at Work also covered this research when it was a working paper.