Liquidity provision and informed trading by individual investors

Xiao Tian, Binh Do, Huu Nhan Duong and Petko S. Kalev

Pacific-Basin Finance Journal, 2015, vol. 35, issue PA, 143-162

Abstract: This study examines the relation between individual investor trading and future stock returns in the Australian equity market. We find that the net trading of Australian individual investors is positively related to future returns. We show that this association is driven by individual investors who play the role as liquidity providers. We further document that the proliferation of algorithmic trading in recent years dampens the relation between individual trading and future returns. Finally, we present evidence that the net individual trading prior to earnings announcements predicts post-announcement returns. This prediction, however, is only observed for individual investors using full-service brokers.

Keywords: Individual investors; Future stock returns; Algorithmic trading; Liquidity provision; Informed trading (search for similar items in EconPapers)
JEL-codes: G10 G20 G24 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:35:y:2015:i:pa:p:143-162

DOI: 10.1016/j.pacfin.2014.11.005

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