Glued to the TV: Distracted Investors and Stock Market Liquidity
نویسندگان
چکیده
We study the causal effect of trading on stock market liquidity. We exploit episodes of sensational news (exogenous to the market) that distract retail investors. On “distraction days” we find that trading activity, liquidity, and volatility all decline among stocks owned predominantly by retail investors. These findings, complemented by additional tests, establish that retail investors contribute to liquidity by serving both as noise traders and as liquidity providers. They also identify adverse selection as an important driver of illiquidity, thereby countervailing recent work that assigns a leading role to inventory risk or questions the usefulness of adverse selection measures.
منابع مشابه
Glued to the TV: Distracted Retail Investors and Stock Market Liquidity
We investigate how distraction affects the trading behavior of retail investors, and ultimately market liquidity. Exploiting episodes of sensational news exogenous to the stock market, we first document that investors stop trading altogether when they are distracted. We report further that these effects are more pronounced for more overconfident–i.e., single-male and active–investors, who are t...
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