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Correlated Trading and Returns
Author(s) -
DORN DANIEL,
HUBERMAN GUR,
SENGMUELLER PAUL
Publication year - 2008
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01334.x
Subject(s) - market liquidity , limit (mathematics) , financial economics , volume weighted average price , economics , stock (firearms) , monetary economics , econometrics , business , market maker , stock market , mathematics , mechanical engineering , mathematical analysis , paleontology , horse , biology , engineering
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.