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The dynamics of individual and institutional trading on the Shanghai Stock Exchange

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  • Lee, Bong Soo
  • Li, Wei
  • Wang, Steven Shuye
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    Abstract

    We investigate the daily dynamic relation between returns and institutional and individual trades in the emerging Chinese stock market. Consistent with the hypotheses of trend-chasing and attention-grabbing trading, we find that the response of individual trading to return shocks is much stronger than that of institutional trading, and individuals are net buyers following return shocks. Second, we find that past individual buys and sells have predictive power, whereas past institutional buys and sells have predictive power for market returns in longer horizons. However, both institutional and individual trading activities are more strongly related to past trades than past returns, and individual trading is also influenced by institutional trading. Moreover, we find that institutional trading in the largest quintile leads the trading in the smallest quintile, but no such lead-lag relation is found for individual trades. Finally, we find that the average cumulative abnormal trading volume of individuals is much larger than that of institutions around the firms' earnings announcement, suggesting that less-informed individual investors are more heavily influenced by firm-specific information disclosures and attention-grabbing events.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 18 (2010)
    Issue (Month): 1 (January)
    Pages: 116-137

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    Handle: RePEc:eee:pacfin:v:18:y:2010:i:1:p:116-137

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

    Related research

    Keywords: Stock returns Institutional and individual trading Granger causality Emerging market;

    References

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    Cited by:
    1. Chen, Xuanjuan & Kim, Kenneth A. & Yao, Tong & Yu, Tong, 2010. "On the predictability of Chinese stock returns," Pacific-Basin Finance Journal, Elsevier, vol. 18(4), pages 403-425, September.
    2. Hung, Weifeng, 2014. "Institutional trading and attention bias," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 71-91.
    3. Lee, Sangwook & Kim, Min Jae & Lee, Sun Young & Kim, Soo Yong & Ban, Joon Hwa, 2013. "The effect of the subprime crisis on the credit risk in global scale," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(9), pages 2060-2071.

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