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Do individual traders undermine firm valuation?

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  • Choi, Paul Moon Sub
  • Choi, Joung Hwa
  • Chung, Chune Young

Abstract

Studies find that noise traders create unhedgeable risks, and individuals have long been suspected of making suboptimal and uninformed trading decisions. Recent arguments suggest using the individual trading weight to proxy for noise trader risk when pricing common and preferred stocks in emerging markets. We empirically corroborate that individual traders undermine the relative valuations of listed firms in South Korea. This result is robust to controlling for corporate governance, institutional monitoring efforts, firm size, accounting ratios, idiosyncratic volatility, liquidity measures, and endogeneity.

Suggested Citation

  • Choi, Paul Moon Sub & Choi, Joung Hwa & Chung, Chune Young, 2020. "Do individual traders undermine firm valuation?," Finance Research Letters, Elsevier, vol. 36(C).
    • Handle: RePEc:eee:finlet:v:36:y:2020:i:c:s1544612319308463
    DOI: 10.1016/j.frl.2020.101567
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    More about this item

    Keywords

    Noise trader risk; Individual trading weight; Firm valuation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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