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Correlated Trading and Returns

Author

Listed:
  • DANIEL DORN
  • GUR HUBERMAN
  • PAUL SENGMUELLER
Abstract
A German broker's clients place similar speculative trades and therefore tend to be on the same side of the market in a given stock during a given day, week, month, and quarter. Aggregate liquidity effects, short sale constraints, the systematic execution of limit orders (coordinated through price movements) or the correlated trading of other investors who pick off retail limit orders do not fully explain why retail investors trade similarly. Correlated market orders lead returns, presumably due to persistent speculative price pressure. Correlated limit orders also predict subsequent returns, consistent with executed limit orders being compensated for accommodating liquidity demands.

Suggested Citation

  • Daniel Dorn & Gur Huberman & Paul Sengmueller, 2008. "Correlated Trading and Returns," Journal of Finance, American Finance Association, vol. 63(2), pages 885-920, April.
    • Handle: RePEc:bla:jfinan:v:63:y:2008:i:2:p:885-920
    DOI: 10.1111/j.1540-6261.2008.01334.x
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    References listed on IDEAS

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