Retail investors’ trading and stock market liquidity |
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| Institution: | 1. Department of International Business, College of Management, Shih Chien University, Taipei 116, Taiwan, ROC;2. Department of Finance, College of Commerce, National Chengchi University, Taipei 116, Taiwan, ROC;3. Department of Finance, College of Management, National Central University, Taoyuan 320, Taiwan, ROC |
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| 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. |
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| Keywords: | Retail investors Liquidity Stock market liquidity G10 G12 |
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