Corporate Shareholdings and the Liquidity of Malaysian Stocks: Investor Heterogeneity, Trading Account Types and the Underlying Channels

46 Pages Posted: 3 Nov 2015 Last revised: 19 Aug 2016

See all articles by Kian-Ping Lim

Kian-Ping Lim

Universiti Malaya

Tze-Chung Thian

Universiti Malaysia Sabah - Labuan School of International Business and Finance

Chee Wooi Hooy

Universiti Sains Malaysia

Date Written: July 25, 2015

Abstract

This paper examines the relationship between shareholdings of various investor groups and stock liquidity for Malaysian public listed firms over the 2002-2009 sample period. Using the Amihud illiquidity ratio, we extend the literature by addressing the issues of investor heterogeneity, trading account types and the interactions of competing liquidity channels. The analysis reveals that only local institutions and local individual investors who trade through the direct accounts are significantly associated with the liquidity of domestic firms. In contrast, the significant liquidity effect for foreign investors operates through the nominee accounts. While institutional ownership exhibits a linear negative relationship, our findings on local individuals and foreign nominees differ greatly from previous studies in that their relationship with stock liquidity is non-monotonic. Apart from the widely researched information asymmetry and trading effects, we find that liquidity is also driven by the largely ignored information competition channel. An important insight from our findings is that the large shareholdings by any particular investor group is detrimental to stock liquidity as they exacerbate information asymmetry, reduce the degree of competition and lower the level of trading activity.

Keywords: Investor groups, Stock liquidity, Information asymmetry, Information competition, Trading, Malaysia

JEL Classification: G12, G32

Suggested Citation

Lim, Kian-Ping and Thian, Tze-Chung and Hooy, Chee Wooi, Corporate Shareholdings and the Liquidity of Malaysian Stocks: Investor Heterogeneity, Trading Account Types and the Underlying Channels (July 25, 2015). Available at SSRN: https://ssrn.com/abstract=2685564 or http://dx.doi.org/10.2139/ssrn.2685564

Kian-Ping Lim (Contact Author)

Universiti Malaya ( email )

Department of Economics
Faculty of Economics and Administration
Kuala Lumpur, 50603
Malaysia

Tze-Chung Thian

Universiti Malaysia Sabah - Labuan School of International Business and Finance ( email )

Kota Kinabalu, Sabah
Malaysia

Chee Wooi Hooy

Universiti Sains Malaysia ( email )

Minden, Penang
Malaysia

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