Investor Heterogeneity and Liquidity

Kalok Chan, Si Cheng, Allaudeen Hameed

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


Fund flows are more correlated among funds with similar investment horizon, consistent with correlated demand for liquidity. We find that stocks held by institutions with more heterogeneous investment horizon are more liquid and have lower volatility of liquidity. Identification tests confirm that the improvement in stock liquidity holds when the increase in investor heterogeneity arises from an exogenous shock due to the 2003 tax reform. In addition, extreme flow-induced trading by institutional funds has a bigger price impact when stocks have a less heterogeneous investor base. Moreover, the premium associated with stock illiquidity is concentrated in stocks with low investor heterogeneity.

Original languageEnglish (US)
Pages (from-to)2798-2833
Number of pages36
JournalJournal of Financial and Quantitative Analysis
Issue number7
StatePublished - 2022

ASJC Scopus subject areas

  • Economics and Econometrics
  • Accounting
  • Finance


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