The informational role of individual investors in stock pricing: Evidence from large individual and small retail investors

Using a unique data set, we find that large individual investors are successful at picking stocks. Large individual investors' correlated trades can not only move synchronous stock prices but also positively predict future returns. More importantly, they tend to trade before major earnings announcements and large price changes. By contrast, small retail investors' correlated trades are inversely associated with synchronous and future stock returns, indicating that small retails are uninformed. The differential information content between large individuals and small retails highlights the need to classify individual investors according to their investment amount when examining their role in stock pricing.