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How do individual investors trade?

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How do individual investors trade? / Nolte, Ingmar; Nolte, Sandra.
High Frequency Trading and Limit Order Book Dynamics. Taylor and Francis Inc., 2016. p. 189-215.

Research output: Contribution in Book/Report/Proceedings - With ISBN/ISSN › Chapter

Harvard

Nolte, I & Nolte, S 2016, How do individual investors trade? in High Frequency Trading and Limit Order Book Dynamics. Taylor and Francis Inc., pp. 189-215.

APA

Nolte, I., & Nolte, S. (2016). How do individual investors trade? In High Frequency Trading and Limit Order Book Dynamics (pp. 189-215). Taylor and Francis Inc..

Vancouver

Nolte I, Nolte S. How do individual investors trade? In High Frequency Trading and Limit Order Book Dynamics. Taylor and Francis Inc. 2016. p. 189-215

Author

Nolte, Ingmar ; Nolte, Sandra. / How do individual investors trade?. High Frequency Trading and Limit Order Book Dynamics. Taylor and Francis Inc., 2016. pp. 189-215

Bibtex

@inbook{9185cb2d22214dd79464723a6f1fb5a9,
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' 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.",
author = "Ingmar Nolte and Sandra Nolte",
note = "Funding Information: The work is supported by the Fritz Thyssen Foundation through the project {\textquoteleft}Measurement Error in Nonlinear Regression Models and Business Tendency Data{\textquoteright}. The authors wish to thank G{\"u}nter Franke, Richard Olsen, Carol Osler, Richard Payne, Winfried Pohlmeier, Mark Salmon and an anonymous referee for helpful comments and constructive discussions. Special thanks go to Olsen Financial Technologies for providing us with the data. The usual disclaimer applies. Publisher Copyright: {\textcopyright} 2015 Taylor & Francis. All rights reserved.",
year = "2016",
month = apr,
day = "14",
language = "English",
isbn = "9781138829381",
pages = "189--215",
booktitle = "High Frequency Trading and Limit Order Book Dynamics",
publisher = "Taylor and Francis Inc.",

}

RIS

TY - CHAP

T1 - How do individual investors trade?

AU - Nolte, Ingmar

AU - Nolte, Sandra

N1 - Funding Information: The work is supported by the Fritz Thyssen Foundation through the project ‘Measurement Error in Nonlinear Regression Models and Business Tendency Data’. The authors wish to thank Günter Franke, Richard Olsen, Carol Osler, Richard Payne, Winfried Pohlmeier, Mark Salmon and an anonymous referee for helpful comments and constructive discussions. Special thanks go to Olsen Financial Technologies for providing us with the data. The usual disclaimer applies. Publisher Copyright: © 2015 Taylor & Francis. All rights reserved.

PY - 2016/4/14

Y1 - 2016/4/14

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.

UR - http://www.scopus.com/inward/record.url?scp=84978517902&partnerID=8YFLogxK

M3 - Chapter

AN - SCOPUS:84978517902

SN - 9781138829381

SP - 189

EP - 215

BT - High Frequency Trading and Limit Order Book Dynamics

PB - Taylor and Francis Inc.

ER -