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How do individual investors trade?

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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How do individual investors trade? / Nolte, Ingmar; Nolte, Sandra.
In: European Journal of Finance, Vol. 18, No. 10, 2012, p. 921-947.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Nolte, I & Nolte, S 2012, 'How do individual investors trade?', European Journal of Finance, vol. 18, no. 10, pp. 921-947. https://doi.org/10.1080/1351847X.2011.601647

APA

Nolte, I., & Nolte, S. (2012). How do individual investors trade? European Journal of Finance, 18(10), 921-947. https://doi.org/10.1080/1351847X.2011.601647

Vancouver

Nolte I, Nolte S. How do individual investors trade? European Journal of Finance. 2012;18(10):921-947. doi: 10.1080/1351847X.2011.601647

Author

Nolte, Ingmar ; Nolte, Sandra. / How do individual investors trade?. In: European Journal of Finance. 2012 ; Vol. 18, No. 10. pp. 921-947.

Bibtex

@article{3c51fa9234e54faea6337e693d1af919,
title = "How do individual investors trade?",
abstract = "This paper examines how high-frequency trading decisions of individual investors are influenced by past price changes. Specifically, we address the question as to whether decisions to open or close a position are different when investors already hold a position compared with when they do not. Based on a unique data set from an electronic foreign exchange trading platform, OANDA FXTrade, we find that investors{\textquoteright} future order flow is (significantly) driven by past price movements and that these predictive patterns last up to several hours. This observation clearly shows that for high-frequency trading, investors rely on previous price movements in making future investment decisions. We provide clear evidence that market and limit orders flows are much more predictable if those orders are submitted to close an existing position than if they are used to open one. We interpret this finding as evidence for the existence of a monitoring effect, which has implications for theoretical market microstructure models and behavioral finance phenomena, such as the endowment effect.",
keywords = "trading activity dataset, order flow, foreign exchange market, monitoring effect",
author = "Ingmar Nolte and Sandra Nolte",
year = "2012",
doi = "10.1080/1351847X.2011.601647",
language = "English",
volume = "18",
pages = "921--947",
journal = "European Journal of Finance",
issn = "1351-847X",
publisher = "Routledge",
number = "10",

}

RIS

TY - JOUR

T1 - How do individual investors trade?

AU - Nolte, Ingmar

AU - Nolte, Sandra

PY - 2012

Y1 - 2012

N2 - This paper examines how high-frequency trading decisions of individual investors are influenced by past price changes. Specifically, we address the question as to whether decisions to open or close a position are different when investors already hold a position compared with when they do not. Based on a unique data set from an electronic foreign exchange trading platform, OANDA FXTrade, we find that investors’ future order flow is (significantly) driven by past price movements and that these predictive patterns last up to several hours. This observation clearly shows that for high-frequency trading, investors rely on previous price movements in making future investment decisions. We provide clear evidence that market and limit orders flows are much more predictable if those orders are submitted to close an existing position than if they are used to open one. We interpret this finding as evidence for the existence of a monitoring effect, which has implications for theoretical market microstructure models and behavioral finance phenomena, such as the endowment effect.

AB - This paper examines how high-frequency trading decisions of individual investors are influenced by past price changes. Specifically, we address the question as to whether decisions to open or close a position are different when investors already hold a position compared with when they do not. Based on a unique data set from an electronic foreign exchange trading platform, OANDA FXTrade, we find that investors’ future order flow is (significantly) driven by past price movements and that these predictive patterns last up to several hours. This observation clearly shows that for high-frequency trading, investors rely on previous price movements in making future investment decisions. We provide clear evidence that market and limit orders flows are much more predictable if those orders are submitted to close an existing position than if they are used to open one. We interpret this finding as evidence for the existence of a monitoring effect, which has implications for theoretical market microstructure models and behavioral finance phenomena, such as the endowment effect.

KW - trading activity dataset

KW - order flow

KW - foreign exchange market

KW - monitoring effect

U2 - 10.1080/1351847X.2011.601647

DO - 10.1080/1351847X.2011.601647

M3 - Journal article

VL - 18

SP - 921

EP - 947

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

IS - 10

ER -