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Retail trading and analyst coverage

Author

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  • Martineau, Charles
  • Zoican, Marius

Abstract

How does retail trading impact information supply in financial markets? We build a trading model with endogenous information supply where analysts maximize trading volume by institutional investors. In equilibrium, sell-side analysts provide higher quality signals in stocks with large retail interest, as institutional investors can trade more aggressively without revealing information. We provide empirical evidence supporting the main prediction of the model: A one standard deviation increase in retail trading leads to an additional 0.6 analysts covering the stock. To establish causality, we confirm our results using stock splits as a plausibly exogenous shock to retail trading.

Suggested Citation

  • Martineau, Charles & Zoican, Marius, 2023. "Retail trading and analyst coverage," Journal of Financial Markets, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finmar:v:66:y:2023:i:c:s1386418123000472
    DOI: 10.1016/j.finmar.2023.100849
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    References listed on IDEAS

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    More about this item

    Keywords

    Retail trading; Analyst coverage; Liquidity; Price efficiency;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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