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Retail investors’ trading and stock market liquidity

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  • Abudy, Menachem Meni

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.

Suggested Citation

  • Abudy, Menachem Meni, 2020. "Retail investors’ trading and stock market liquidity," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301741
    DOI: 10.1016/j.najef.2020.101281
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    3. Ryu, Doojin & Yang, Heejin & Yu, Jinyoung, 2022. "Insider trading and information asymmetry: Evidence from the Korea Exchange," Emerging Markets Review, Elsevier, vol. 51(PA).
    4. Donald Lien & Pi-Hsia Hung, 2023. "Whose trades contribute more to price discovery? Evidence from the Taiwan stock exchange," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 213-263, July.
    5. Olfa Berrich & Halim Dabbou, 2023. "Tunisian corporate bond market liquidity: a qualitative approach," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 15(5), pages 795-819, February.
    6. Samuel Tabot Enow, 2023. "Stock Market Liquidity during Periods of Distress and its Implications: Evidence from International Financial Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 13(1), pages 1-6, January.
    7. Liu, Xufeng & Wan, Die, 2022. "Asymmetric positive feedback trading and stock pricing in China," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Retail investors; Liquidity; Stock market liquidity;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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