WEBINAR SERIES IN ECONOMICS

9 DECEMBER 2020 (Wednesday)
10.00am - 11.30am

Zoom link: https://zoom.us/j/95262544623 

ABSTRACT

Liquidity is crucial to the efficient functioning of secondary stock markets. Unfortunately, lower level of stock liquidity has been a common problem faced by most emerging market firms. Drawing from stocks listed on Bursa Malaysia and Shenzhen SME Board, we provide empirical evidence to show that expanding shareholder base is an effective liquidity-enhancing strategy in both the stock markets. This key driver of liquidity has been largely ignored in previous literature mainly due to the lack of quality data. To justify the inclusion of shareholder base in a liquidity model, we first assemble the theoretical channels. Our baseline and extensive robustness checks confirm that more shareholders are associated with higher liquidity, but the negative effect of wider spreads kicks in when shareholder base exceeds a threshold level, due to higher volatility induced by noise trading. The Shenzhen SME Board adds value to our research on two grounds. First, with a composition of more than 90% of the account holders are retail investors, the market provides a clean test of the noise trading channel. Second, the well-structured investor education and protection programmes by Shenzhen Stock Exchange are crucial to the expansion of shareholder base.