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Speculate against speculative demand

ap Gwilym, O., Kita, A. and Wang, Qingwei 2014. Speculate against speculative demand. International Review of Financial Analysis 34 , pp. 212-221. 10.1016/j.irfa.2014.03.001

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Abstract

Measuring individual investors' speculative demand for stocks using the Google search volume index (hereafter “SVI”) on penny stocks, we examine how it relates to the return dynamics of U.S. stock indices. Speculative demand leads to a short-term return reversal. A simple trading strategy that sells a stock index when SVI is high and buys it otherwise generates annual excess returns of up to 20% over the buy-and-hold strategy. Applying the trading strategy to the corresponding ETFs and index futures yields similar results. Transaction costs, liquidity risk and strong time variation of the excess returns can potentially limit the exploitation of arbitrage opportunities.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Uncontrolled Keywords: Investor attention; Speculative demand; Penny stocks; Market returns; Trading strategy; Limits to arbitrage
Publisher: Elsevier
ISSN: 1057-5219
Date of First Compliant Deposit: 30 March 2016
Date of Acceptance: 8 March 2014
Last Modified: 20 Feb 2020 10:30
URI: http://orca.cf.ac.uk/id/eprint/66241

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