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Daily institutional trades and stock price volatility in a retail investor dominated emerging market

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  • Li, Wei
  • Wang, Steven Shuye
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    Abstract

    We examine the short-run dynamic relation between daily institutional trading and stock price volatility in a retail investor-dominated emerging market. We find a significantly negative relation between volatility and institutional net trading that is mainly due to the unexpected institutional trading. The price volatility-institutional trade relation differs for institutional buys and institutional sells, and for small and large stocks. Institutional investors herd-trade in large stocks, but do not systematically engage in positive-feedback trading. We argue that the net impact of informational and noninformational institutional trades determines the relation between volatility and institutional trading, and that the relation is negative when informational trading by institutions prevails.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Markets.

    Volume (Year): 13 (2010)
    Issue (Month): 4 (November)
    Pages: 448-474

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    Handle: RePEc:eee:finmar:v:13:y:2010:i:4:p:448-474

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    Web page: http://www.elsevier.com/locate/finmar

    Related research

    Keywords: Volatility Institutional trade Information asymmetry Herding;

    References

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    Cited by:
    1. Thomas, Ashok & Spataro, Luca & Mathew, Nanditha, 2014. "Pension funds and stock market volatility: An empirical analysis of OECD countries," Journal of Financial Stability, Elsevier, vol. 11(C), pages 92-103.
    2. Ülkü, Numan & Weber, Enzo, 2013. "Identifying the interaction between stock market returns and trading flows of investor types: Looking into the day using daily data," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2733-2749.
    3. Chien, Cheng-Yi & Lee, Hsiu-Chuan & Tai, Shih-Wen & Liao, Tzu-Hsiang, 2013. "Information, hedging demand, and institutional investors: Evidence from the Taiwan Futures Exchange," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 394-414.

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