Linguistic Diversity and Stock Trading Volume
National Taiwan University - College of Management
Harrison G. Hong
Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)
Stanford Graduate School of Business
Shanghai Advanced Institute of Finance; Shanghai Jiao Tong University (SJTU); China Academy of Financial Research (CAFR)
March 14, 2013
Rock Center for Corporate Governance at Stanford University Working Paper No. 134
We test the hypothesis that the linguistic diversity of a stock’s investor base leads to more trading. Trading might be due to beliefs differing across languages or investor exposure to multiple languages leading to more trading ideas. Using stock message boards from China, which has ten languages, we measure the linguistic diversity of a stock’s investor base using a Herfindahl index of messages posted from different languages. A firm’s diversity increases in the number of languages spoken in the province where it is headquartered. Using the latter as the instrument, trading volume in a stock rises with its linguistic diversity. We then attempt to discriminate among competing mechanisms. We also show using a sample of forty-one countries that countries with more linguistic diversity have greater stock market turnover.
Number of Pages in PDF File: 61
Date posted: March 16, 2013 ; Last revised: December 30, 2013
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