Speculate against speculative demand
Research output: Contribution to journal › Article › peer-review
Electronic versions
DOI
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.
| Original language | English |
|---|---|
| Pages (from-to) | 212-221 |
| Journal | International Review of Financial Analysis |
| Volume | 34 |
| DOIs | |
| Publication status | Published - 26 Mar 2014 |