Define: Odd Lot Theory

UK Accounting Glossary

Definition: Odd Lot Theory



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Full Definition of Odd Lot Theory


Odd lot theory is a theory within the discipline of technical analysis. Unlike large institutional investors, small investors tend to trade in smaller, “odd lots.” Odd lot theory derives its name from these odd-lot investors who buy less than 100 shares.

Odd lot theory states that small independent investors are generally wrong about the timing of equity trades, and thereby serve as a contrary indicator of future stock price movements. Odd lot theory predicts that when the volume of odd-lot purchases spike, the market is due for a downturn. On the other hand, odd lot theory states that under bear market conditions, following a mass sell-off of odd lots, the market is about to recover.

While historically popular, odd lot theory has failed to be borne out by analysis of market data and has fallen out of use by most investors. Another reason for the decline of odd lot theory is the propensity for small investors to invest in mutual funds rather than shares of stock.


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Definition Sources


Definitions for Odd Lot Theory are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 7th February 2020.