Odd Lot Theory

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Odd Lot Theory

In technical analysis, the theory that odd-lotters (defined as small investors who deal in fewer than 100 shares at a time) are both badly informed and have low risk tolerance. Therefore, an investor may profit by doing the opposite of whatever odd-lotters are doing. For example, if a technical analyst sees that a substantial numbers of odd-lotters are selling a particular security, he/she may take this as an indicator to buy that security. The theory had some prominence in the 1960s and 1970s, but came under criticism later for lack of evidence that odd-lotters' investments underperformed the market as a whole. By the 1990s, the odd-lot theory had largely fallen into disuse, in part because of the growing popularity of mutual funds for small investors.

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