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Review of Quantitative Finance and Accounting

Erschienen in:

01.10.2015 | Original Research

Individual investor trading and stock liquidity

verfasst von: Qin Wang, Jun Zhang

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 3/2015

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Abstract

Recent studies suggest that individual investors may have private information and their trading can be informative. Consistent with this observation, we find that stocks that are more heavily traded by individual investors have higher liquidity, after controlling for other determinants of liquidity. The result is robust to various model specifications, the inclusion of firm, industry, and year fixed-effects, controls for endogeneity, and alternative measures of liquidity. The positive effect of individual investor trading on stock liquidity is stronger for firms with greater information asymmetry, consistent with individual investor trading reducing information asymmetry. These results suggest that individual investor trading improves stock liquidity through reducing information asymmetry.

Vorheriger Artikel R-2GAM stochastic volatility model: flexibility and calibration

Nächster Artikel Determinants of the length of time a firm’s book-to-market ratio is greater than one

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A firm’s industry comparable firm is another firm that is in its industry as defined by Fama and French (1997) industry classifications and has the closest firm size.

For example, individual investors may have private information of firms in some industries because they have knowledge of or connections to those industries and the information is industry-wide.

The natural logarithm of relative spread is used to mitigate the concern on the non-normality of relative spread. The results are qualitatively the same when relative spread is used as the dependent variable.

Non-individual investor trading share volume = total trading share volume − individual investor trading share volume.

Among the four coefficients on IndVolume Ratio and Log(IndTurnover), the coefficient on IndVolume Ratio in model 1 is significant at 10 % level, and the other three coefficients are significant at 1 % level.

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Titel: Individual investor trading and stock liquidity
verfasst von: Qin Wang
Jun Zhang
Publikationsdatum: 01.10.2015
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 3/2015
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-014-0444-6

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