Speculate against speculative demand

Ap Gwilym, O. and Kita, A. and Wang, Q. (2014) Speculate against speculative demand. International Review of Financial Analysis, 34. pp. 212-221. DOI: 10.1016/j.irfa.2014.03.001

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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
Subjects: Research Publications
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Date Deposited: 09 Dec 2014 16:32
Last Modified: 23 Sep 2015 02:59
ISSN: 1057-5219
URI: http://e.bangor.ac.uk/id/eprint/392
Identification Number: DOI: 10.1016/j.irfa.2014.03.001
Publisher: Elsevier
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