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Is individual trading priced in the preferred stock discount?

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  • Park, Cheol
  • Choi, Paul Moon Sub
  • Choi, Joung Hwa

Abstract

Individuals have long been blamed for noise trader risk. Moreover, the literature suggests that the discount of preferred shares against comparable common equities is due to dual-class differences in dividend yield, voting rights, management control, and turnover. In this paper, we argue and present evidence that noise trader risk, as proxied by the individual trading weight, explains the preferred stock discount observed in the Korean stock market after controlling for the conventional determinants. This main result and additional considerations empirically support the presence of noise trader risk.

Suggested Citation

  • Park, Cheol & Choi, Paul Moon Sub & Choi, Joung Hwa, 2019. "Is individual trading priced in the preferred stock discount?," Emerging Markets Review, Elsevier, vol. 38(C), pages 326-346.
    • Handle: RePEc:eee:ememar:v:38:y:2019:i:c:p:326-346
    DOI: 10.1016/j.ememar.2018.03.006
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    References listed on IDEAS

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    Cited by:

    1. Choi, Paul Moon Sub & Choi, Joung Hwa & Chung, Chune Young, 2020. "Do individual traders undermine firm valuation?," Finance Research Letters, Elsevier, vol. 36(C).

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    More about this item

    Keywords

    Preferred stock discount; Noise trader risk; Individual trading weight;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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