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Do individual investors demand or provide liquidity? New evidence from dividend announcements

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  • Chen, Zhijuan
  • Lin, William T.
  • Ma, Changfeng

Abstract

This paper provides new evidence related to whether individual investors demand or provide liquidity. While net trading is often used in the literature, it is improper in our research since buying and selling by individual investors increase by almost the same amount around dividend announcements. By differentiating buying and selling, we find that individual buyers demand liquidity while individual sellers provide liquidity around dividend announcements. Specifically, the buying volume of individual investors before and during dividend announcements negatively predicts future returns, while it is positively associated with past and contemporaneous returns. The selling volume of individual investors shows a similar relationship with returns.

Suggested Citation

  • Chen, Zhijuan & Lin, William T. & Ma, Changfeng, 2019. "Do individual investors demand or provide liquidity? New evidence from dividend announcements," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
  • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x19300769
    DOI: 10.1016/j.pacfin.2019.101179
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    References listed on IDEAS

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    More about this item

    Keywords

    Liquidity; Dividend announcements; Individual investors;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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