Investor Participation, Liquidity Provision, and Stock PriceVolatility

Abstract

This study focuses on explaining the intuition behind the empirical analyses in the paper. Investors could passively participate in the markets by just holding stocks without trading, or more aggressively participate in the market by directly trading stocks. Results show that the more aggressively they participate in the market, the more un-balanced they tend to supply liquidity in the stock market, which eventually drives up the stock price volatility.