In this study, we use the number of retail investors in China's stock market to investigate how retail investors affect stock price synchronicity. We find that a higher number of retail investors in a firm is associated with higher stock price synchronicity. Moreover, we trace this association to two sources. One is a negative effect of the number of retail investors on the probability of informed trading (PIN), suggesting that retail investors generate arbitrage risk which discourages informed trading. The other is a positive influence of the number of retail investors on price comovement (beta), resulting from correlated trading among retail investors.
|Journal||Review of Pacific Basin Financial Markets and Policies|
|Publication status||Published - 2022|
Corresponding author firstname.lastname@example.org
- R 2
- Retail investors
- price comovement