Retail investors’ trading and stock market liquidity

Menachem Abudy

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: The paper investigates the relation between retail investors’ participation in trading and aggregate stock market liquidity. The findings show a positive and significant relation between retail investors’ trading and stock market liquidity. Examination of the determinants of retail investors’ trading reveals that, on average, retail investors with more diversified trading activity tend to trade when liquidity is higher, the frequency of their arrival to the market is not affected by the level of liquidity, and retail investors are willing to trade at a lower liquidity level as sellers than as buyers. Moreover, retail investors’ trading does not create price noise at the aggregate market level. Overall, the evidence suggests that retail investors contribute to market quality.

Keywords: Retail investors; Liquidity; Stock market liquidity (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301741

DOI: 10.1016/j.najef.2020.101281

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