The tendency of investors to buy yesterday’s winners and losers is reflected in a
U-shaped pattern in which buy–sell imbalance is high for big losers, high for big
winners, and low for stocks without significant price moves the previous day.^14
The U-shaped pattern is most pronounced for investors at the large discount
brokerage; these investors buy attention-grabbing stocks. When imbalance is calculated
by value of trades, the buy–sell imbalance of these investors is 29.1% for the vingtile of
stocks with the worst return performance on the previous day. The imbalance drops to
8.6% in the eighth return decile and rises back to 11.1% for stocks with the best return
performance on the previous day.
The effect of attention and news on the buying behavior of individual and institutional investors 187Figure 7.1.Individual investor buy–sell imbalances by number of trades for stocks sorted on the
current day’s abnormal trading volume and previous day’s return.
(^14) Empirical buy–sell imbalances are very similar when we partition stocks on same-day return rather than on previous-day
return.