Retail Investor Attention and Stock Liquidity

Abstract:     
We use the search volume index (SVI) of stock ticker provided by Google Trends to capture the retail investor’s active attention on the S&P 500 stocks by following Da, Engelberg, and Gao (2011). Based on the analysis of data between January 2004 and December 2009, we show that the majority of the cross-sectional variation of SVI cannot be explained by the passive attention measures including online media coverage from Google News and advertising expenditures. We further find that firms with increased retail investor attention, reflected by the level and the change of SVI, are associated with a larger shareholder base and with significantly improved stock liquidity. The results are robust to the control of firm-specific characteristics that affect stock liquidity, and year and industry fixed effects. Our results remain consistent to alternative measures of stock liquidity. 【First version: 23 Jan 2011】

Number of Pages in PDF File: 34

Keywords: Investors attention, breadth of ownership, liquidity, bid-ask spread, search volume index, media coverage, SVI, Google, Google Trends, Google News

JEL Classification: G10, G14

working papers series