Speculate against speculative demand
Speculate against speculative demand
We construct a measure of individual investors' speculative demand for stocks from their online queries on penny stocks provided by Google Search volume index (hereafter "SVI"). We examine how it affects the return dynamics of U.S. stock indices. We find that the speculative demand leads to a short-term return reversal. We build a simple trading strategy that sells a stock index when SVI is high and buys the stock index otherwise. It generates annual excess returns of up to 20% over the buy-and-hold strategy. Applying the trading strategy to the corresponding ETFs and index futures yields similar results. Transaction costs and liquidity risk can partially explain the excess returns. Strong time variation of the excess returns imposes additional limits to arbitrage.
investor attention, speculative demand, penny stocks, market returns, trading strategy, limits to arbitrage
212-221
ap Gwilym, O.
dcad2393-1a8b-4088-8508-cdf45e40816d
Kita, A.
fd98ff4d-435a-4b69-8a7f-13171bf5c1fc
Wang, Q.
55f8a112-bd52-4444-a5ba-88f920bd9a75
July 2014
ap Gwilym, O.
dcad2393-1a8b-4088-8508-cdf45e40816d
Kita, A.
fd98ff4d-435a-4b69-8a7f-13171bf5c1fc
Wang, Q.
55f8a112-bd52-4444-a5ba-88f920bd9a75
ap Gwilym, O., Kita, A. and Wang, Q.
(2014)
Speculate against speculative demand.
International Review of Financial Analysis, 34, .
(doi:10.1016/j.irfa.2014.03.001).
Abstract
We construct a measure of individual investors' speculative demand for stocks from their online queries on penny stocks provided by Google Search volume index (hereafter "SVI"). We examine how it affects the return dynamics of U.S. stock indices. We find that the speculative demand leads to a short-term return reversal. We build a simple trading strategy that sells a stock index when SVI is high and buys the stock index otherwise. It generates annual excess returns of up to 20% over the buy-and-hold strategy. Applying the trading strategy to the corresponding ETFs and index futures yields similar results. Transaction costs and liquidity risk can partially explain the excess returns. Strong time variation of the excess returns imposes additional limits to arbitrage.
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penny_stock.pdf
- Accepted Manuscript
More information
Accepted/In Press date: 8 March 2014
e-pub ahead of print date: 26 March 2014
Published date: July 2014
Keywords:
investor attention, speculative demand, penny stocks, market returns, trading strategy, limits to arbitrage
Organisations:
Southampton Business School
Identifiers
Local EPrints ID: 380795
URI: http://eprints.soton.ac.uk/id/eprint/380795
ISSN: 1057-5219
PURE UUID: 653eca83-7367-4be2-925c-ce401fe29334
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Date deposited: 21 Sep 2015 09:55
Last modified: 14 Mar 2024 21:05
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Contributors
Author:
O. ap Gwilym
Author:
A. Kita
Author:
Q. Wang
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