When Price Discovery and Market Quality Are Most Needed: The Role of Retail Investors During Pandemic

57 Pages Posted: 6 Jul 2022 Last revised: 3 Aug 2023

See all articles by Charles M. Jones

Charles M. Jones

Columbia University

Lin Tan

PBCSF, Tsinghua University

Xiaoyan Zhang

Tsinghua University - PBC School of Finance

Xinran Zhang

Central University of Finance and Economics (CUFE) - School of Finance

Date Written: June 1, 2022

Abstract

Using the Boehmer, Jones, Zhang, and Zhang (2021) algorithm, we identify a broad swath of marketable retail investor orders in the U.S. market during the pandemic. The marketable retail trading volumes rapidly rise from $325 billion in 2019 to $852 billion at mid-2020, and stay high for the next two years. The retail order flows positively predict cross-sectional returns over various horizons, and are associated with wider future effective spreads and higher future volatilities, as well as less market participations by high frequency traders and short-sellers. We find supportive evidence for informed and uninformed retail hypotheses.

Keywords: retail investors, liquidity, volatility, high frequency trading, short selling

JEL Classification: G11, G12, G14, G23

Suggested Citation

Jones, Charles M. and Tan, Lin and Zhang, Xiaoyan and Zhang, Xinran, When Price Discovery and Market Quality Are Most Needed: The Role of Retail Investors During Pandemic (June 1, 2022). PBCSF-NIFR Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4151106 or http://dx.doi.org/10.2139/ssrn.4151106

Charles M. Jones

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Lin Tan

PBCSF, Tsinghua University ( email )

Beijing
China

Xiaoyan Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Xinran Zhang (Contact Author)

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

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