Investor Heterogeneity and Liquidity

Kalok Chan, Si Cheng and Allaudeen Hameed

Journal of Financial and Quantitative Analysis, 2022, vol. 57, issue 7, 2798-2833

Abstract: Fund flows are more correlated among funds with similar investment horizon, consistent with correlated demand for liquidity. We find that stocks held by institutions with more heterogeneous investment horizon are more liquid and have lower volatility of liquidity. Identification tests confirm that the improvement in stock liquidity holds when the increase in investor heterogeneity arises from an exogenous shock due to the 2003 tax reform. In addition, extreme flow-induced trading by institutional funds has a bigger price impact when stocks have a less heterogeneous investor base. Moreover, the premium associated with stock illiquidity is concentrated in stocks with low investor heterogeneity.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:57:y:2022:i:7:p:2798-2833_10

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().