Title: Influence of institutional investor heterogeneity on stock liquidity and its underlying liquidity channels

Authors: Jia Jia Hing; Yee Peng Chow

Addresses: Faculty of Accountancy, Finance and Business, Tunku Abdul Rahman University College, Kuala Lumpur, Malaysia ' Faculty of Accountancy, Finance and Business, Tunku Abdul Rahman University College, Kuala Lumpur, Malaysia

Abstract: This paper investigates the influence of institutional investor heterogeneity (i.e., active and passive institutional investors) and the underlying liquidity channels (i.e., information asymmetry and trading activity channels) through which these institutional investor groups affect stock liquidity. Drawing on a sample of listed firms in Malaysia from 2012 to 2018, this paper employs the pooled ordinary least squares method to conduct the empirical tests. Initially, the empirical results based on the linear model show that the association between institutional investor shareholdings and stock liquidity is solely attributed to the active institutional investors. Further tests using the quadratic model reveal that a non-monotonic relationship arises between shareholdings by both active and passive institutional investors and stock liquidity due to competing liquidity channels. In particular, passive institutional investors improve stock liquidity due to lower level of information asymmetry, while active institutional investors improve stock liquidity by enhancing the level of trading activity.

Keywords: institutional investor heterogeneity; active institutional investors; passive institutional investors; liquidity channels; information asymmetry; trading activity; stock liquidity.

DOI: 10.1504/IJBEM.2022.123840

International Journal of Business and Emerging Markets, 2022 Vol.14 No.3, pp.252 - 278

Received: 15 Mar 2021
Accepted: 08 Jun 2021

Published online: 04 Jul 2022 *

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