Retail investor sentiment and return comovement: an emperical analysis of individual investors at the Nairobi Stock Exchange

Abstract

Using databases of more than 680,000 retail investor transactions over 2005 - 2007, the research sought to show that these trades are systematically correlated. Individuals buy (or sell) in concert with noise trader models, I find that systematic retail trading explains return comovements for stocks with high retail concentration, small-cap, value and lower institutional ownership and lower priced stocks especially if these stocks are also costly to arbitrage. Macroeconomic news and analyst earnings forecast revisions do not explain these results. Collectively the findings of this study support a role for investor sentiment in the formation of stock returns.