Investor Heterogeneity and Liquidity

64 Pages Posted: 10 Feb 2017 Last revised: 4 May 2020

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: May 3, 2020

Abstract

We find that stocks held by institutions with similar investment horizon are less liquid, have higher volatility of liquidity and command a higher illiquidity premium. We find that fund flows are more correlated among funds with similar investment horizon, consistent with correlated demand for liquidity. Additionally, extreme flow-induced trading by institutional funds has a bigger price impact when stocks have less heterogeneous investor base. We also find that the illiquidity premium is concentrated in stocks with low investor heterogeneity. Our findings are economically stronger in the post-2000 period with the growth in the diversity of institutional investor base.

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

JEL Classification: G12, G23

Suggested Citation

Chan, Kalok and Cheng, Si and Hameed, Allaudeen, Investor Heterogeneity and Liquidity (May 3, 2020). 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://bizfaculty.nus.edu.sg/faculty-details/?profId=1

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