This paper investigates the relationship between local equity market participation and stock liquidity to understand how the trading by local retail investors affects stock liquidity. Given that there are striking racial differences in risky asset holdings and large cross-sectional racial variations across U.S. counties, we use county-level racial composition as a proxy for the rate of local retail participation. We find that stocks headquartered in counties with a higher white percentage are more liquid. This effect is stronger among stocks with a high retail concentration (i.e., small size, low institutional ownership, low price, value and high volatility). It is also stronger for stocks located in the “only-game-in-town” counties and in counties with more volatile household income streams. Our findings are consistent with Admati and Pfleiderer’s (1988) model that theorizes a positive relationship between noise trading and liquidity under endogenous informed trading; i.e., the impact of local retail participation on stock liquidity is stronger when there are more institutional investors located nearby, especially local institutional investors with “small” investment styles and “transient” trading styles. Finally, we document a positive impact of local retail participation on firm value, supporting the view that liquidity increases firm performance. Our results add to the understanding of how retail investor trading and local bias affect stock liquidity and firm value.