The Impact of Retail Investors on Stock Liquidity and Crash Risk

The influence of retail investors on the stock market is controversial among experts. Some studies conclude that retail investors are uninformed, overconfident investors who assess risk poorly and thus destabilize the financial markets (e.g., Grinblatt and Keloharju, 2009; Barber and Odean, 2013). However, more recent studies suggest that retail investors are informed investors (e.g., Boehmer et al., 2020), provide liquidity, and therefore reduce the risk of stock-price crashes and stabilize the financial market (e.g., Barrot at al., 2016). In particular, in times of financial crises, retail investors might play an important role (e.g., Mitchell and Pulvino, 2012).

In a recent … Read more