Investor Participation and the Volatility-Volume Relation: Evidence from an Emerging Market

Abstract

Using a unique dataset from the Chinese stock market that keeps track of daily number of shareholders, we find that ownership breadth (proxied by number of shareholders) is negatively related to stock price volatility. However, consistent with the previous literature on volatility-volume relation, we find stock price volatility remains positively related to number of traders participating in the market.We also find that the relations of both the daily order imbalance and the daily depth imbalance with the number of shareholders (traders) are negative (positive). Our results suggest that a higher number of shareholders tend to supply liquidity and reduce volatility, while a higher number of traders tend to compete for liquidity and increase volatility.

Keywords: Ownership Breadth, Volatility-Volume Relation

JEL Classification: G10, G12