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Linguistic Diversity and Stock Trading Volume

61 Pages Posted: 16 Mar 2013 Last revised: 30 Dec 2013

Yen-Cheng Chang

National Taiwan University - College of Management

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Larissa Tiedens

Stanford Graduate School of Business

Bin Zhao

Shanghai Advanced Institute of Finance; Shanghai Jiao Tong University (SJTU); China Academy of Financial Research (CAFR)

Date Written: March 14, 2013

Abstract

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

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

Yen-Cheng Chang (Contact Author)

National Taiwan University - College of Management ( email )

Department and Graduate Institute of Finance
College of Management
Taipei 106
Taiwan

Harrison G. Hong

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Larissa Tiedens

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Bin Zhao

Shanghai Advanced Institute of Finance ( email )

211 West Huaihai Road
Shanghai, 200030
China

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

China Academy of Financial Research (CAFR) ( email )

1954 Huashan Road
Shanghai P.R.China, 200030
China

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