The determinants of retail trading activity in emerging markets: A cross-market analysis

This paper is the first to provide empirical evidence on the determinants of retail trading at a market level. Exploiting a unique proprietary database representing 13 emerging markets, we use cross-market analyses to investigate whether transaction costs, financial literacy programs, tax interventions, and availability of nonequity products influence equity retail trading. We find that retail trading activity is very responsive to changes in transaction costs and the availability of fixed-income products, more mildly responsive to financial literacy programs, but not sensitive to tax interventions. Our results suggest that retail investors, in the aggregate, behave according to theoretical predictions.