Retail Investors and Stock Price Synchronicity

Wenfeng Wu; Oliver M. Rui

doi:10.1142/S0219091522500187

Retail Investors and Stock Price Synchronicity

Wenfeng Wu (First Author), Oliver M. Rui (Participant Author)

Finance

Shanghai Jiao Tong University

Research output: Contribution to journal › Journal

Abstract

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.

Original language	English
Journal	Review of Pacific Basin Financial Markets and Policies
Volume	25
Issue number	3
DOIs	https://doi.org/10.1142/S0219091522500187
Publication status	Published - 2022

Corresponding author email

wfwu@sjtu.edu.cn

Keywords

China
PIN
R 2
Retail investors
price comovement
synchronicity

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ABDC-B
ESCI

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10.1142/S0219091522500187

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abstract = "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.",

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AB - 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.

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Retail Investors and Stock Price Synchronicity

Abstract

Corresponding author email

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