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The Role of Institutional Traders around Section Switches on the Tokyo Stock Exchange

Author

Listed:
  • Asjeet S. Lamba

    (Department of Accounting and Finance, The University of Melbourne, Parkville, Victoria 3052, Australia)

  • Mohamed Ariff

    (Mt. Eliza Business School, Monash University, Caulfield, Victoria 3161, Australia)

Abstract

In this paper we analyze the trading behavior of major market participants around switches from section 2 to section 1 of the Tokyo Stock Exchange (TSE). Previous research has shown that firms switching to section 1 earn significant positive abnormal returns around the switch date. It has been argued that the abnormal returns earned by these firms are driven by the trading strategies of a few large mutual funds that dominate trading on the TSE. If these large mutual funds have prior information about impending switches, and are exploiting this information, their trading strategies would be more obvious in periods when a large number of firms switch to section 1. Based on the observation that a much larger proportion of firms switch to section 1 in September than in other months, we examine the pricing and trading volume behavior of firms switching to section 1 in September and other months during the years 1984–1992. We find significantly higher abnormal returns for firms switching in September than in other months. Also, firms switching in September experience a significant and persistent increase in excess trading volume compared with firms switching in other months. Taken in conjunction with the abnormal return results, this evidence is consistent with a persistent buying behavior on the part of large mutual funds prior to an impending switch to section 1.

Suggested Citation

  • Asjeet S. Lamba & Mohamed Ariff, 1998. "The Role of Institutional Traders around Section Switches on the Tokyo Stock Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 233-251.
    • Handle: RePEc:wsi:rpbfmp:v:01:y:1998:i:02:n:s021909159800017x
    DOI: 10.1142/S021909159800017X
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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