Do individual traders undermine firm valuation?

Paul Moon Sub Choi, Joung Hwa Choi, Chune Young Chung

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Studies find that noise traders create unhedgeable risks, and individuals have long been suspected of making suboptimal and uninformed trading decisions. Recent arguments suggest using the individual trading weight to proxy for noise trader risk when pricing common and preferred stocks in emerging markets. We empirically corroborate that individual traders undermine the relative valuations of listed firms in South Korea. This result is robust to controlling for corporate governance, institutional monitoring efforts, firm size, accounting ratios, idiosyncratic volatility, liquidity measures, and endogeneity.

Original languageEnglish
Article number101567
JournalFinance Research Letters
Volume36
DOIs
StatePublished - Oct 2020

Keywords

  • Firm valuation
  • Individual trading weight
  • Noise trader risk

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