Liquidity Provision and Informed Trading by Individual Investors

45 Pages Posted: 31 Jan 2014 Last revised: 7 Feb 2015

See all articles by Xiao Tian

Xiao Tian

Independent

Binh Huu Do

Monash University; Financial Research Network (FIRN)

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Petko S. Kalev

La Trobe Business School

Date Written: January 30, 2014

Abstract

This study examines the relation between individual investor trading and future stock returns in the Australian equity market. We find that the net trading of Australian individual investors is positively related to future returns. We show that this association is driven by individual investors who play the role as liquidity providers. We further document that the proliferation of algorithmic trading in recent years dampens the relation between individual trading and future returns. Finally, we present evidence that the net individual trading prior to earnings announcements predicts post-announcement returns. This prediction, however, is only observed for individual investors using full-service brokers.

Keywords: Individual investors, Future stock returns, Algorithmic trading, Liquidity provision, Informed trading

JEL Classification: G10, G20, G24

Suggested Citation

Tian, Xiao and Do, Binh Huu and Duong, Huu Nhan and Kalev, Petko S., Liquidity Provision and Informed Trading by Individual Investors (January 30, 2014). Pacific-Basin Finance Journal, Forthcoming, 2014 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2388104

Xiao Tian

Independent ( email )

Binh Huu Do

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Huu Nhan Duong (Contact Author)

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Petko S. Kalev

La Trobe Business School ( email )

Department of Economics and Finance
Donald Whitehead Building: Level 3, DWB313
Bundoora, Victoria 3086
Australia
+613 9479 6285 (Phone)
+613 9479 1654 (Fax)

HOME PAGE: http://www.latrobe.edu.au/business/about/staff/profile?uname=PKalev

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
41
Abstract Views
874
PlumX Metrics