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Retail Investor Attention and Stock Liquidity

46 Pages Posted: 20 Mar 2011 Last revised: 8 Apr 2015

Rong Ding

University of Warwick

Wenxuan Hou

University of Edinburgh - Business School

Date Written: April 7, 2015

Abstract

We use the search volume index (SVI) of the stock ticker provided by Google Trends to capture the active attention that retail investors pay to stocks. Based on the analysis of S&P 500 stocks from 2004 to 2009, we show that the majority of the variation in SVI cannot be explained by passive attention measures, including Google News coverage and advertising expenditure. We find that retail investor attention, reflected by the level and change in SVI, significantly enlarges the shareholder base and improves stock liquidity. The results are robust to the control of endogeneity issues.

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

Suggested Citation

Ding, Rong and Hou, Wenxuan, Retail Investor Attention and Stock Liquidity (April 7, 2015). Journal of International Financial Markets, Institutions and Money, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1786762 or http://dx.doi.org/10.2139/ssrn.1786762

Rong Ding

University of Warwick ( email )

Warwick Business School
University of Warwick
Coventry, CV4 7AL
United Kingdom

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

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