Retail Investors’ Trading and Stock Market Liquidity

Forthcoming, The North American Journal of Economics and Finance

37 Pages Posted: 13 Nov 2020

See all articles by Menachem (Meni) Abudy

Menachem (Meni) Abudy

Bar-Ilan University - Graduate School of Business Administration

Date Written: September 9, 2020

Abstract

The paper investigates the relation between retail investors’ participation in trading and aggregate stock market liquidity. The findings show a positive and significant relation between retail investors’ trading and stock market liquidity. Examination of the determinants of retail investors’ trading reveals that, on average, retail investors with more diversified trading activity tend to trade when liquidity is higher, the frequency of their arrival to the market is not affected by the level of liquidity, and retail investors are willing to trade at a lower liquidity level as sellers than as buyers. Moreover, retail investors’ trading does not create price noise at the aggregate market level. Overall, the evidence suggests that retail investors contribute to market quality.

Keywords: retail investors, liquidity, stock market liquidity

JEL Classification: G10, G12

Suggested Citation

Abudy, Menachem (Meni), Retail Investors’ Trading and Stock Market Liquidity (September 9, 2020). Forthcoming, The North American Journal of Economics and Finance, Available at SSRN: https://ssrn.com/abstract=3698911 or http://dx.doi.org/10.2139/ssrn.3698911

Menachem (Meni) Abudy (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

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