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Does retail trading matter to price discovery?

Author

Listed:
  • Chen Tao

    (Department of Finance and Business Economics, Faculty of Business Administration, 59193University of Macau, Taipa, Macau)

Abstract

The diminishing importance of retail investors and the institutionalization of markets are arguably a result of the general perception that individuals are not well informed and, hence, are better off using professional services (Davis, 2009). However, this paper provides evidence supporting the opposite. Using a global sample, we examine whether retail trading is informative around the world. Overall, retail investors are documented to enhance price efficiency by trading in the same direction as permanent price changes, contributing 24.8 % to price discovery, and accelerating the information from both scheduled and unscheduled news to be impounded into prices.

Suggested Citation

  • Chen Tao, 2020. "Does retail trading matter to price discovery?," German Economic Review, De Gruyter, vol. 21(4), pages 475-492, December.
    • Handle: RePEc:bpj:germec:v:21:y:2020:i:4:p:475-492:n:5
    DOI: 10.1515/ger-2019-0041
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    More about this item

    Keywords

    Retail Trading; Price Discovery; Global Markets;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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