Individual Investor Trading and Stock Liquidity

Review of Quantitative Finance and Accounting, Forthcoming

39 Pages Posted: 14 Feb 2014

See all articles by Qin Emma Wang

Qin Emma Wang

Oklahoma State University - Tulsa

Jun Zhang

Oklahoma State University

Date Written: February 12, 2014

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.

Keywords: Individual Investor, Trading, Stock Liquidity, Information Asymmetry

Suggested Citation

Wang, Qin Emma and Zhang, Jun, Individual Investor Trading and Stock Liquidity (February 12, 2014). Review of Quantitative Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2394999

Qin Emma Wang (Contact Author)

Oklahoma State University - Tulsa ( email )

Department of Finance
461 Business Building
Stillwater, OK 74078
United States
918-594-8394 (Phone)
918-594-8281 (Fax)

HOME PAGE: http://business.okstate.edu/directory/694480.html

Jun Zhang

Oklahoma State University ( email )

201 Business
Stillwater, OK 74078-0555
United States

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