Retail Investors and Stock Price Synchronicity

Wenfeng Wu and Oliver M. Rui ()
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Oliver M. Rui: China Europe International Business School, Pudong, Shanghai 201206, P. R. China

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2022, vol. 25, issue 03, 1-31

Abstract: In this study, we use the number of retail investors in China’s stock market to investigate how retail investors affect stock price synchronicity. We find that a higher number of retail investors in a firm is associated with higher stock price synchronicity. Moreover, we trace this association to two sources. One is a negative effect of the number of retail investors on the probability of informed trading (PIN), suggesting that retail investors generate arbitrage risk which discourages informed trading. The other is a positive influence of the number of retail investors on price comovement (beta), resulting from correlated trading among retail investors.

Keywords: Retail investors; synchronicity; R2; price comovement; PIN; China (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0219091522500187

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