61 Pages Posted: 16 Mar 2013 Last revised: 30 Dec 2013
Date Written: March 14, 2013
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.
Suggested Citation: Suggested Citation
Chang, Yen-Cheng and Hong, Harrison G. and Tiedens, Larissa and Zhao, Bin, Linguistic Diversity and Stock Trading Volume (March 14, 2013). Rock Center for Corporate Governance at Stanford University Working Paper No. 134. Available at SSRN: https://ssrn.com/abstract=2234246 or http://dx.doi.org/10.2139/ssrn.2234246
By Mary Barth