Investor Heterogeneity and Liquidity

51 Pages Posted: 10 Feb 2017 Last revised: 11 Sep 2019

See all articles by Kalok Chan

Kalok Chan

CUHK Business School

Si Cheng

Chinese University of Hong Kong - Department of Finance

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance

Date Written: September 3, 2019

Abstract

We find that stocks held by institutions with similar investment horizon are less liquid and have higher volatility of liquidity. Consistent with correlated demand for liquidity, fund flows are highly correlated among funds with similar investment horizon but not when funds differ in their investment horizons. Also, extreme flow-induced trading by institutional funds has a bigger price impact when stocks have less heterogeneous investor base. Additionally, we find that the premium associated with illiquid stocks is concentrated in stocks with low investor heterogeneity. Our findings are stronger in the recent decades, emphasizing the effect of increased institutional investor participation.

Keywords: Liquidity, Volatility of Liquidity, Investor Heterogeneity, Liquidity Premium

JEL Classification: G12, G23

Suggested Citation

Chan, Kalok and Cheng, Si and Hameed, Allaudeen, Investor Heterogeneity and Liquidity (September 3, 2019). Asian Finance Association (AsianFA) 2017 Conference. Available at SSRN: https://ssrn.com/abstract=2914324 or http://dx.doi.org/10.2139/ssrn.2914324

Kalok Chan

CUHK Business School ( email )

Hong Kong
852 3943 9988 (Phone)

Si Cheng (Contact Author)

Chinese University of Hong Kong - Department of Finance ( email )

12/F, Cheng Yu Tung Building
No.12, Chak Cheung Street
Shatin, N.T.
Hong Kong

HOME PAGE: http://www.bschool.cuhk.edu.hk/staff/cheng-si/

Allaudeen Hameed

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://www.bschool.nus.edu.sg/staff_profile/cv.asp?ID=3

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