The literature suggests that the discount of preferred shares against comparable common equities is due to dual-class differences in dividend yield, voting rights, management control, liquidity, etc. Besides, individuals have long been blamed for noise trader risk (NTR). In this paper, we argue and evidence that NTR proxied for by individual trading weight (ITW) explains preferred stock discount(PSD) observed in the Korean stock market controlling for the aforementioned covariates. This novel finding is robust to considering negligible and negative (premium) PSDs. These results lend additional empirical support to NTR.
JEL Classification: G12, G15, G32
Keywords: Preferred stock discount; Noise trader risk; Individual trading weight
