does retail trading matter to price discovery?

The diminishing importance of retail investors and the institutionalization of markets are arguably a result of the general perception that individuals are not well informed and, hence, are better off using professional services (Davis, 2009). However, this paper provides evidence supporting the opposite. Using a global sample, we examine whether retail trading is informative around the world. Overall, retail investors are documented to enhance price efficiency by trading in the same direction as permanent price changes, contributing 24.8% to price discovery, and accelerating the information from both scheduled and unscheduled news to be impounded into prices.

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Suggested Citation

Chen, Tao (2020): Does Retail Trading Matter to Price Discovery?. Version: 1. German Economic Review. Dataset.

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