New Economics Papers
on Market Microstructure
Issue of 2007‒10‒27
one paper chosen by
Thanos Verousis

  1. Correlated Trading and Returns By Dorn, Daniel; Huberman, Gur; Sengmueller, Paul

  1. By: Dorn, Daniel; Huberman, Gur; Sengmueller, Paul
    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.
    Keywords: correlated trading
    JEL: G1
    Date: 2007–10

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