A taxonomy of individual liquidity provision: Evidence from the Taiwan stock exchange

Calvin J. Chiou, Xiaozhou Zhou and Chang Chan

Finance Research Letters, 2022, vol. 50, issue C

Abstract: Using trade-level data from the Taiwan Stock Exchange, we document an asymmetric pattern of liquidity provision by individual investors who serve as de facto market makers. Specifically, on average, individual investors provide more liquidity during market declines. We further investigate the impact of asymmetric individual liquidity provision on market efficiency. Despite being uninformed, individual investors’ liquidity provision ameliorates market efficiency more during market declines. Our results suggest that individual investors provide liquidity to help those with private information correct prices toward efficient prices, in turn, enhancing market efficiency.

Keywords: Liquidity provision; Individual investors; Market efficiency; De facto market makers (search for similar items in EconPapers)
JEL-codes: D91 F14 G12 G14 G41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004445

DOI: 10.1016/j.frl.2022.103246

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