buy custom Individual Investor Trading and Stock Returns essay

buy custom Individual Investor Trading and Stock Returns essay Introduction Individual investor trading stocks differ from the traditional economic theory, which produces too much trading volume, but it has to obtain below-benchmark performance. The unordinary high degree of trading introduces the major difficulties to the field of finance. According to the New York Stock Exchanges website, in 2000, the annual share turnover reached the figure of 99%; the total volume was almost 350 billion shares. This tendency proves the impact of individual investors trading on the economy of the United States. The traditional financial literature presents many reasons that explain why individual investors prevail in the current economic system. For instance, one of them is the fact that investors will not trade if the marginal benefit is almost equal or a bit higher than its costs (Foucault, Sraer, Thesmar, 2011). Moreover, private information is the main motivation for investors to trade. However, one can introduce some other reasons for trading, such as the necessity of portfolio rebalance, when stock prices change; in this way, they turn their portfolios to the usual weight. According to this fact, individual investor trading is motivated by various reasons, though there are also some points, which still require further explanation. To this category, one may rfer the issues that are connected with benefits of individual investor trading, difficulties that may arise, and further development of this tendency in the stock trade market. Information about the Issue In comparison to traditional trading, individual investor trading uses different strategies in order to achieve the necessary results. Individual investor trade in an aggressive manner may lead to the significant losses (Park Kim, 2014). The main difference between institutions and individual trading investor is that an institution prefers to minimize their risks and choose only those portfolios that will bring them profit with the minimal risks or there will be minimal profit without risks. Individual investors use the opposite strategy; they prefer to choose portfolios with high profit, though they could be risky, and they never use the portfolios that do not bring significant profit. In other words, individual investors are always ready to risk if it can bring certain benefits in the end; they will not spend their time on portfolios that cannot offer significant benefits. The strategy of individual investors may bring certain advantages to them because they have more chances to receive a beneficial portfolio. The presence of risk is quite high, but in the end, the amount of advantageous and the total risk balance this strategy andd make it rather effective. Issues about Individual Trade Investors, which Are Under Discussion The only thing that is left undiscovered in the issue of individual investor trading is how much they lose. The risk that they take is much higher comparing to traditional institutions. According to this fact, their losses should be several times higher. Nevertheless, one cannot give a certain answer to this question, because every individual trade investor uses his/her specific system and strategy of trading (Foucault, Sraer, Thesmar, 2011). Hence, the risk that they take is different; it is a complex task to give the valid data about this point. Another issue that requires additional study is whether this strategy brings more advantages than disadvantages. In fact, both institutions and individual trade investors have almost the same results; the only difference is that institutions choose more stable strategy that minimizes the risk in their approach, while individual investors try not to avoid risks; they meet them in order to receive more profits, though they often lose too. To sum up, it can be said that individual trade investors represent a different strategy in a trade market that has both its advantages and disadvantages. The significant feature of their strategy is readiness to accept risk in order to receive higher profit. Buy custom Individual Investor Trading and Stock Returns essay