Individual investor trading and stock liquidity

Qin Wang and Jun Zhang ()

Review of Quantitative Finance and Accounting, 2015, vol. 45, issue 3, 485-508

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. Copyright Springer Science+Business Media New York 2015

Keywords: Individual investor; Trading; Stock liquidity; Information asymmetry; G12; G14 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (18)

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DOI: 10.1007/s11156-014-0444-6

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