Abstract
The paper investigates the relation between retail investors’ participation in trading and aggregate stock market liquidity. The findings show a positive and significant relation between retail investors’ trading and stock market liquidity. Examination of the determinants of retail investors’ trading reveals that, on average, retail investors with more diversified trading activity tend to trade when liquidity is higher, the frequency of their arrival to the market is not affected by the level of liquidity, and retail investors are willing to trade at a lower liquidity level as sellers than as buyers. Moreover, retail investors’ trading does not create price noise at the aggregate market level. Overall, the evidence suggests that retail investors contribute to market quality.
Original language | English |
---|---|
Article number | 101281 |
Journal | North American Journal of Economics and Finance |
Volume | 54 |
DOIs | |
State | Published - Nov 2020 |
Bibliographical note
Publisher Copyright:© 2020 Elsevier Inc.
Funding
I am indebted to Avi Wohl for his assistance and suggestions. I also thank Hamid Beladi (the Editor) and two anonymous referees, Azi Ben-Rephael, Sam Bronfeld, Robby Goldenberg, Efrat Shust, Gideon Saar, the seminar participants at IDC Herzliya, Hebrew University, Tel Aviv University and in the Caesarea Center Annual Conference 2014 for helpful comments and suggestions. I thank the Tel Aviv Stock Exchange for providing the data. This research was supported by the Israel Science Foundation grant 337/14. I am indebted to Avi Wohl for his assistance and suggestions. I also thank Hamid Beladi (the Editor) and two anonymous referees, Azi Ben-Rephael, Sam Bronfeld, Robby Goldenberg, Efrat Shust, Gideon Saar, the seminar participants at IDC Herzliya, Hebrew University, Tel Aviv University and in the Caesarea Center Annual Conference 2014 for helpful comments and suggestions. I thank the Tel Aviv Stock Exchange for providing the data. This research was supported by the Israel Science Foundation grant 337/14.
Funders | Funder number |
---|---|
Israel Science Foundation | 337/14 |
Tel Aviv University |
Keywords
- Liquidity
- Retail investors
- Stock market liquidity