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  • 2022
  • Working Paper

The Retail Habitat

By: Toomas Laarits and Marco Sammon
  • Format:Print
  • | Language:English
  • | Pages:47
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Abstract

Retail investors trade hard-to-value stocks. Controlling for size, stocks with a high share of retail-initiated trades are composed of more intangible capital, have longer duration cash-flows and a higher likelihood of being mispriced. Consistent with retail-heavy stocks being harder to value, we document that such stocks are less sensitive to earnings news. As an additional consequence, the well-known earnings announcer risk premium is limited to low retail stocks only. Further, high-retail stocks are more sensitive to retail order flow and are especially expensive to trade around earnings announcements. Overall, the findings document a new dimension of investor heterogeneity and suggest the comparative advantage of retail in holding hard-to-value stocks.

Keywords

Retail; Retail Trade; Intangible Capital; Mispricing; Investment; Valuation; Business Earnings

Citation

Laarits, Toomas, and Marco Sammon. "The Retail Habitat." Working Paper, October 2022.
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About The Author

Marco Sammon

Finance
→More Publications

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    The Disappearing Index Effect

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    Retail Investors’ Contrarian Behavior Around News, Attention, and the Momentum Effect

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    Stock Market Stimulus

    By: Robin Greenwood, Toomas Laarits and Jeffrey Wurgler
More from the Authors
  • The Disappearing Index Effect By: Robin Greenwood and Marco Sammon
  • Retail Investors’ Contrarian Behavior Around News, Attention, and the Momentum Effect By: Cheng (Patrick) Luo, Enrichetta Ravina, Marco Sammon and Luis M. Viceira
  • Stock Market Stimulus By: Robin Greenwood, Toomas Laarits and Jeffrey Wurgler
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