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Liquidity provisions by individual investor trading prior to dividend announcements: Evidence from Taiwan

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  • Chen, Zhijuan
  • Lin, William T.
  • Ma, Changfeng
  • Tsai, Shih-Chuan

Abstract

This paper investigates the role of liquidity provisions played by individual investors prior to dividend announcements in Taiwan. We first document a positive relationship between aggregate individual trading before dividend announcements and abnormal stock returns in the one month after the events. We find that this positive relationship varies with liquidity. We then decompose the abnormal returns following the event into information and liquidity provision components. The information component is not significant at all, but the liquidity component is positively significant, which shows that it is individual investors’ provisions of liquidity to institutional investors prior to dividend announcements that drives the positive relationship between pre-event individual trading and post-event returns.

Suggested Citation

  • Chen, Zhijuan & Lin, William T. & Ma, Changfeng & Tsai, Shih-Chuan, 2014. "Liquidity provisions by individual investor trading prior to dividend announcements: Evidence from Taiwan," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 358-374.
  • Handle: RePEc:eee:ecofin:v:28:y:2014:i:c:p:358-374
    DOI: 10.1016/j.najef.2014.03.006
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    Cited by:

    1. Beladi, Hamid & Chao, Chi Chur & Hu, May, 2016. "The Christmas effect—Special dividend announcements," International Review of Financial Analysis, Elsevier, vol. 43(C), pages 15-30.
    2. Lin, William T. & Tsai, Shih-Chuan & Chiu, Peter, 2016. "Do foreign institutions outperform in the Taiwan options market?," The North American Journal of Economics and Finance, Elsevier, vol. 35(C), pages 101-115.
    3. Yang, Chunpeng & Zhou, Liyun, 2015. "Investor trading behavior, investor sentiment and asset prices," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 42-62.

    More about this item

    Keywords

    Individual investors; Information; Net individual trading; Liquidity provisions; Dividend announcements;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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