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Journal Articles Journal of Finance Year : 2011

Individual Investors and Volatility


We show that retail trading activity has a positive effect on the volatility of stock returns, which suggests that retail investors behave as noise traders. To identify this effect, we use a reform of the French stock market that raises the relative cost of speculative trading for retail investors. The daily return volatility of the stocks affected by the reform falls by 20 basis points (a quarter of the sample standard deviation of the return volatility) relative to other stocks. For affected stocks, we also find a significant decrease in the magnitude of return reversals and the price impact of trades.

Dates and versions

hal-00630297 , version 1 (08-10-2011)



Thierry Foucault, David Sraer, David Thesmar. Individual Investors and Volatility. Journal of Finance, 2011, 66 (4), pp.1369-1406. ⟨10.1111/j.1540-6261.2011.01668.x⟩. ⟨hal-00630297⟩


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