Effects of Ordered Position on Stock Liquidity: New Nonlinear Evidence from Japanese REITs

William Cheung, Lewen Guo, Velma Zahirovic-Herbert, Yuichiro Kawaguchi and Stephan Unger

Journal of Real Estate Research, 2023, vol. 45, issue 3, 360-384

Abstract: Wide-ranging research identifies ordered position bias and shows that alphabetical name ordering is advantageous to those at the beginning of an alphabetical listing. This study examines the impact of ordered position on stock liquidity, focusing on the Japanese language’s unique structure, which does not have a strict ordering system. The study documents a nonlinear, two-dimensional ordered position effects of Japanese real estate investment trusts (J-REITs) names on stock liquidity. We also find weak evidence that the length of company names matters to stock liquidity but is of secondary importance and works only through the ordered position effect. Our results cannot be fully explained by the traditional factors of stock liquidity, such as firm size, age, leverage, and volatility. Nor can they be fully explained by the differences in ownership structure or the main bank (or Keiretsu) effect. Given the relative homogeneity of investment and regulatory constraints, our results are unlikely to be driven by cross-sectional heterogeneity of investment styles or payout policy. Our findings are consistent with the notion that investors are subject to cognitive biases.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:taf:rjerxx:v:45:y:2023:i:3:p:360-384

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DOI: 10.1080/08965803.2022.2150114

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