Liquidity Commonality in Individuals’ Order Flows: New Evidence from the Taiwanese Stock Market

Wen-liang Hsieh*, Yuan yi Lin

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish
Pages (from-to)606-645
Number of pages40
JournalAsia-Pacific Journal of Financial Studies
Volume45
Issue number4
DOIs
StatePublished - 1 Aug 2016

Keywords

  • Commonality
  • Herding
  • Institutional traders
  • Liquidity
  • Retail traders

Fingerprint Dive into the research topics of 'Liquidity Commonality in Individuals’ Order Flows: New Evidence from the Taiwanese Stock Market'. Together they form a unique fingerprint.

Cite this