This paper examines the relation between market volatility and investor trades by identifying who supplies and demands market liquidity on the Tokyo Stock Exchange. Because the different trading patterns of various investor types such as individual investors, institutional investors, and foreign investors affect market liquidity differently, we find that market volatility fluctuates significantly depending on which investor types participate in trade. We show that market volatility increases by more than 50% from the average level when there are greater buy trades by momentum investors that demand liquidity and there are less sell trades by contrarian (or profit-taking) investors that supply liquidity. On the other hand, volatility dampens by more than 57% when there are greater sell trades by profit-taking investors, mostly by domestic investors, while there are less momentum buy trades.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 16 (2008) Issue (Month): 4 (September) Pages: 370-388 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF