odd-lot theory

Odd-lot theory

The theory that profits can be made by making trades contrary to odd-lot trading patterns, since odd-lot investors have poor timing. This theory is no longer popular.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

odd-lot theory

The technical theory that holds that an investor should make investment decisions contrary to what the odd-lotters, on balance, are doing. For example, if odd-lot sales exceed odd-lot purchases, the odd-lot theory says that the smart investor should buy. Conversely, if odd-lot purchases exceed odd-lot sales, the theory says that the smart investor should sell. The odd-lot theory is based on the premise that small investors who trade in odd lots tend to make the wrong decisions.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.