Liquidity provision and informed trading by individual investors

Xiao Tian; Binh Huu Do; Huu Nhan Duong; Petko Stefanov Kalev

doi:10.1016/j.pacfin.2014.11.005

Liquidity provision and informed trading by individual investors

Xiao Tian, Binh Huu Do, Huu Nhan Duong, Petko Stefanov Kalev

Research output: Contribution to journal › Article › Research › peer-review

14 Citations (Scopus)

Abstract

This study examines the relation between individual investor trading and future stock returns in the Australian equity market. We find that the net trading of Australian individual investors is positively related to future returns. We show that this association is driven by individual investors who play the role as liquidity providers. We further document that the proliferation of algorithmic trading in recent years dampens the relation between individual trading and future returns. Finally, we present evidence that the net individual trading prior to earnings announcements predicts post-announcement returns. This prediction, however, is only observed for individual investors using full-service brokers.

Original language	English
Pages (from-to)	143 - 162
Number of pages	20
Journal	Pacific Basin Finance Journal
Volume	35
DOIs	https://doi.org/10.1016/j.pacfin.2014.11.005
Publication status	Published - 2015

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10.1016/j.pacfin.2014.11.005

Cite this

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title = "Liquidity provision and informed trading by individual investors",

abstract = "This study examines the relation between individual investor trading and future stock returns in the Australian equity market. We find that the net trading of Australian individual investors is positively related to future returns. We show that this association is driven by individual investors who play the role as liquidity providers. We further document that the proliferation of algorithmic trading in recent years dampens the relation between individual trading and future returns. Finally, we present evidence that the net individual trading prior to earnings announcements predicts post-announcement returns. This prediction, however, is only observed for individual investors using full-service brokers.",

author = "Xiao Tian and Do, {Binh Huu} and Duong, {Huu Nhan} and Kalev, {Petko Stefanov}",

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AB - This study examines the relation between individual investor trading and future stock returns in the Australian equity market. We find that the net trading of Australian individual investors is positively related to future returns. We show that this association is driven by individual investors who play the role as liquidity providers. We further document that the proliferation of algorithmic trading in recent years dampens the relation between individual trading and future returns. Finally, we present evidence that the net individual trading prior to earnings announcements predicts post-announcement returns. This prediction, however, is only observed for individual investors using full-service brokers.

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DO - 10.1016/j.pacfin.2014.11.005

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