Stock market participants and their trading behaviours

Abstract

One important line of literature in nance studies the behaviours of stock marketparticipants, i.e., institutional investors and retail investors. Following thisarea of research, I investigate the inuence of arbitrageurs, which is one typeof institutional investors, on stock market liquidity and volatility, in the lightof intraday extreme price movements and subsequent trading halts. Besides,I also provide comprehensive evidence of after hours trading (AHT) activitiesand propose an identication strategy for retail activity in AHT.The rst chapter analyses a set of intraday rally and crash events at therm level during the single stock circuit breaker (SSCB) program, and documentsthe cross-sectional spillover eects of such events on non-halted stocks.One coauthor and I test whether such major price jumps, and subsequent tradinghalts, aect related stocks through the destabilizing arbitrage channel. Wend that extreme price movements that trigger the circuit breakers at the rmlevel are accompanied by a massive surge in volume, spread and short-termvolatility, which gradually revert back to normal. Speculative strategies of arbitrageurssuch as momentum and pairs trading cause cross-sectional spilloversin volume and volatility during the trading halt.The second chapter provides comprehensive evidence on after hours trading(AHT) activity on the U.S. markets. I show that the landscape for AHTchanged substantially over time. AHT activity has mostly shifted to alternativetrading platforms. I propose an identication strategy for retail activity inAHT exploiting the SEC regulation change regarding the odd lot post-tradetransparency. The sorting exercise suggest that odd-lot activity during theAHT is fundamentally dierent than the odd-lot activity observed during theregular trading hours (RTH). I analyze the determinants of AHT activity bycollecting a large set of corporate events and show whether retail investors respondto corporate events. I show that corporate events cannot solely explainAHT. My results reveal that AHT retail investors act as liquidity providersand follow a contrarian style, and hence explain why momentum prots aremainly driven by overnight activity.