Retail Trading and Analyst Coverage

41 Pages Posted: 29 Apr 2019 Last revised: 30 Jan 2024

See all articles by Charles Martineau

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Marius Zoican

University of Toronto at Mississauga - Department of Management; University of Toronto - Rotman School of Management

Date Written: May 3, 2023

Abstract

How does retail trading impact information supply in financial markets? We build a trading model with endogenous information supply where analysts maximize trading volume by institutional investors. In equilibrium, sell-side analysts provide higher quality signals in stocks with large retail interest, as institutional investors can trade more aggressively without causing significant price impact. We provide empirical evidence supporting the main prediction of the model: a one standard deviation increase in retail trading leads to an additional 0.6 analysts covering the stock. To establish causality, we confirm our results using stock splits as a plausibly exogenous shock to retail trading.

Keywords: retail trading, analyst coverage, liquidity, price efficiency

JEL Classification: G11, G24, G40, D83, M41

Suggested Citation

Martineau, Charles and Zoican, Marius, Retail Trading and Analyst Coverage (May 3, 2023). Journal of Financial Markets, Volume 66, November 2023, 100849, Available at SSRN: https://ssrn.com/abstract=3376162 or http://dx.doi.org/10.2139/ssrn.3376162

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

Marius Zoican (Contact Author)

University of Toronto at Mississauga - Department of Management ( email )


Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.mariuszoican.com

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