Premium
Liquidity Commonality in Individuals’ Order Flows: New Evidence from the Taiwanese Stock Market
Author(s) -
Hsieh Wenliang Gideon,
Lin Yuanyi
Publication year - 2016
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12141
Subject(s) - market liquidity , order (exchange) , business , index (typography) , liquidity crisis , monetary economics , stock market , financial economics , stock (firearms) , institutional investor , economics , finance , corporate governance , mechanical engineering , world wide web , computer science , engineering , paleontology , horse , biology
By using data that distinguish order flow among types of trader, we provide new evidence that retail investors’ trading leads to strong liquidity commonality in the Taiwanese stock market. The liquidity provision of retail traders is cross‐sectionally correlated with each other and comoves closely with the market‐wide liquidity. Order flows of foreign and domestic institutional traders, despite co‐moving within their order flows, contribute substantially less to the market‐wide commonality. Commonality is stronger for large and index‐included stocks. The size effect and index inclusion effect are found for retailers’ order flows but not with institutional liquidity provision. Our results suggest that herd trading among retail investors can drive liquidity commonality in markets with active individual participants.