Investor Composition, Trading Styles and Liquidity: An Analysis of Japanese Stocks

50 Pages Posted: 16 Nov 2023

See all articles by Hao Jiang

Hao Jiang

Michigan State University

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Takeshi Yamada

Australian National University (ANU)

Terry Zhang

Australian National University (ANU)

Date Written: October 17, 2023

Abstract

Our panel regressions reveal that Japanese stocks with greater holdings by foreign institutions tend to have wider spreads and greater turnover. These observations reflect causation running in both directions; foreign investors are attracted to more liquid stocks, but they also affect liquidity. To estimate the causal effect of foreign institutions on liquidity, we instrument for changes in foreign institutional holdings with a Bartik-style measure capturing a stock’s share of aggregate foreign investor flows, along with MSCI index membership. The estimates indicate that an increase in foreign holdings decreases the liquidity of Japanese shares.

Keywords: Liquidity, Foreign Institution, Japan, Bid-Ask Spread, Amihud illiquidity

JEL Classification: G10, G12, G14, G15

Suggested Citation

Jiang, Hao and Titman, Sheridan and Yamada, Takeshi and Zhang, Terry, Investor Composition, Trading Styles and Liquidity: An Analysis of Japanese Stocks (October 17, 2023). Available at SSRN: https://ssrn.com/abstract=4605450 or http://dx.doi.org/10.2139/ssrn.4605450

Hao Jiang

Michigan State University ( email )

315 Eppley Center
Department of Finance
East Lansing, MI 48824
United States

HOME PAGE: http://sites.google.com/site/haojiangfinance/

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Takeshi Yamada

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Terry Zhang (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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