Preliminary

Haas School of Business, UC-Berkeley. We are extremely grateful to the BSI-Gamma foundation for providing financial support for this research. We thank Shane Shepherd for helpful research assistance. Bob Wood helped us navigate the ISSM data, while Gjergji Cici helped us navigate the TAQ data. Do Noise Traders Move Markets? We study the trading behavior of individual investors using the Trade and Quotes (TAQ) and Institute for the Study of Security Markets (ISSM) transaction data over the period 1983 to 2001. We document three results: (1) Order imbalance based on buyer- and seller-initiated small trades from the TAQ/ISSM data correlate well with the order imbalance based on trades of individual investors from brokerage firm data. This indicates trade size is a reasonable proxy for the trading of individual investors. (2) Order imbalance based on TAQ/ISSM data indicate strong herding by individual investors. Individual investors predominantly buy (sell) the same stocks as each other contemporaneously. Furthermore, they predominantly buy (sell) the same stocks on