Posted: 23 Aug 2010 Last revised: 15 Mar 2011
Date Written: August 23, 2010
While Merton (1987) proposes that firm value increases with the number of shareholders, relatively few studies have explicitly sought to identify the factors that affect investor participation per se in equity markets. Using a unique dataset that measures the inflow and outflow of equity investors in Australian-listed firms, we relate market uncertainty to the trading behaviour of investors. Stock return volatility encourages both entry and exit of shareholders. Incumbent shareholders are more likely to divest fully of their holdings as the stock price increases. On the size of trades, a rising and volatile stock price leads to a greater initial purchase and final sale of holdings by new and old shareholders, respectively.
Keywords: investors, turnover, uncertainty, disposition effect
JEL Classification: G10, G11
Suggested Citation: Suggested Citation