Abstract

http://ssrn.com/abstract=682462
 
 

References (29)



 
 

Citations (2)



 


 



Little Guys, Liquidity, and the Informational Efficiency of Price: Evidence from the Tokyo Stock Exchange on the Effects of Small Investor Participation


Hee-Joon Ahn


SungKyunKwan University

Jun Cai


City University of Hong Kong (CityUHK) - Department of Economics & Finance

Yasushi Hamao


University of Southern California - Marshall School of Business - Finance and Business Economics Department

Michael Melvin


BlackRock; CESifo (Center for Economic Studies and Ifo Institute)

March 2005

AFA 2006 Boston Meetings Paper

Abstract:     
This paper provides an analysis of the equity-market effects of a substantial increase in individual shareholder participation in the market for a firm. The data are based on reductions in lot sizes or Minimum Trade Units (MTUs) on the Tokyo Stock Exchange (TSE). There is a shift in order flow from large to small trades after MTU reductions. Since small, individual investors are generally thought to be noise traders, it may be expected that greater individual investor participation creates greater liquidity, but adds noise to prices, lowering the informativeness of prices and increasing return volatility, as found in studies of stock splits. However, the influx of individual investors is associated with a reduction in firm-specific volatility, along with greater liquidity, a lower probability of informed trades and an increase in the speed of adjustment of prices to a shock. MTU reductions are also associated with positive cumulative abnormal returns (CARs). Robust results indicate that CARs increase with greater firm-specific volatility, lower beta, increases in share volume, lower spreads, and increases in individuals as a percentage of total shareholders. Conditioned on these variables, the total number of shareholders has no significant effect on CARs. The results suggest that it is the composition of shareholders, in terms of individual investor participation, rather than the total number of shareholders, that determines the effect of a change in MTU on share prices. The greater is individual shareholder participation, the greater the return from MTU reduction.

Number of Pages in PDF File: 44

Keywords: Small investors, noise traders, informed traders, microstructure, Tokyo Stock Exchange, minimum trading unit

JEL Classification: G14, G15

working papers series


Download This Paper

Date posted: March 15, 2005  

Suggested Citation

Ahn, Hee-Joon and Cai, Jun and Hamao, Yasushi and Melvin, Michael, Little Guys, Liquidity, and the Informational Efficiency of Price: Evidence from the Tokyo Stock Exchange on the Effects of Small Investor Participation (March 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=682462 or http://dx.doi.org/10.2139/ssrn.682462

Contact Information

Hee-Joon Ahn
SungKyunKwan University ( email )
53 Myeongnyun-dong 3-ga Jongno-ju
Seoul, 110-745
Korea
Jun Cai
City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )
83 Tat Chee Avenue
Kowloon
Hong Kong
Yasushi Hamao
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
(213) 740-0822 (Phone)
Michael Melvin (Contact Author)
BlackRock ( email )
400 Howard St
San Francisco, CA 94105
United States
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Feedback to SSRN


Paper statistics
Abstract Views: 2,533
Downloads: 409
Download Rank: 39,166
References:  29
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.297 seconds