Individual investors repurchasing behavior : preference for stocks previously owned

Abstract

In this paper we study the repurchasing behavior of individual investors and identify several characteristics (stock- and investor-specific) that affect the preference for repurchasing stocks previously owned. Using a unique database of 5,128 individual investors trading from August 1st, 2003 to July 31st, 2007, we find that investors prefer to repurchase stocks that are prior winners and those that dropped in price after being sold, in line with Strahilevitz, Odean and Barber (2011). We also find that the larger the prior gain, or the drop in stock price after the sell, the more likely is the investor to repurchase the same stock. Additionally, we find that (1) local stocks with negative market adjusted performance are more likely to be repurchased, and (2) less active, under-diversified, and poor performance investors are more likely to engage in such behavior. Overall, our results indicate that reference prices, prior stock returns, stock visibility, and investor performance and sophistication are determinants of the repurchasing behavior.