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Do Domestic Institutional Trades Exacerbate Information Asymmetry? Evidence from the Korean Stock Market

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  • Chune Young Chung

    (Chung-Ang University)

  • Yunjae Lee

    (Chung-Ang University)

  • Doojin Ryu

    (Sungkyunkwan University)

Abstract

We analyze a trading dataset from the Korean stock market, a representative and leading emerging equity market, to study the impact of domestic institutional trades on information asymmetry. Using the bid–ask spread as a proxy for the adverse selection cost imposed by information asymmetry, we empirically examine the relationship between domestic institutional trades and their corresponding bid–ask spreads. We find that bid–ask spreads tend to increase when the trading volume of domestic institutional investors is high, suggesting that such investors tend to aggravate information asymmetry as informed traders in the Korean stock market.

Suggested Citation

  • Chune Young Chung & Yunjae Lee & Doojin Ryu, 2017. "Do Domestic Institutional Trades Exacerbate Information Asymmetry? Evidence from the Korean Stock Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 24(4), pages 309-322, December.
    • Handle: RePEc:kap:apfinm:v:24:y:2017:i:4:d:10.1007_s10690-017-9235-0
    DOI: 10.1007/s10690-017-9235-0
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    More about this item

    Keywords

    Bid–ask spread; Domestic institution; Information asymmetry; Institutional trade; Korean stock market;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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