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Who moves stock prices? Monthly evidence

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Author Info
Ødegaard, Bernt Arne () (University of Stavanger)

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Abstract

Existing evidence using US data shows a simultaneous covariability between a stock's price and quarterly flows into and out of the stock by institutional investors. In this paper we use date on monthly changes in holdings by all investor groups at the Oslo Stock Exchange to shown that the quarterly effects in US data is concentrated within a month. We see a clear positive relation between monthly net flows into a stock by institutions and foreigners and the stock's return. We find no evidence of any effects the next month, providing evidence against the hypothesis that the US quarterly results are due to within-quarter feedback. Such feedback effects must be of less than one month duration. We show that offsetting net inflows by mutual funds and foreigners are net outflows by individual and nonfinancial investors. The interesting question is which of these groups are active in pushing prices. While we can not empirically distinguish which of the various investor groups is reacting, we argue that the most reasonable story is that institutions and foreign investors are the active parties, since the prices move in the direction of these groups' trades. The lack of next-month feedback (price reversals) is consistent with prices moving toward fundamentals.

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File URL: http://www1.uis.no/ansatt/odegaard/uis_wps_econ_fin/uis_wps_2009_4_odegaard.pdf
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Publisher Info
Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2009/4.

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Length: 24 pages
Date of creation: 01 Feb 2009
Date of revision:
Handle: RePEc:hhs:stavef:2009_004

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Postal: University of Stavanger, NO-4036 Stavanger, Norway
Web page: http://www.uis.no/research/economics_and_finance
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For technical questions regarding this item, or to correct its listing, contact: (Bernt Arne Odegaard).

Related research
Keywords: Asset Prices; Investor Groups; Mutual Funds; Herding; Feedback.;

Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G20 - Financial Economics - - Financial Institutions and Services - - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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    Other versions:
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  11. Dahlquist, Magnus & Robertsson, Goran, 2004. "A note on foreigners' trading and price effects across firms," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 615-632, March. [Downloadable!] (restricted)
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    Other versions:
  16. Andreas Walter & Friedrich Moritz Weber, 2006. "Herding in the German Mutual Fund Industry," European Financial Management, Blackwell Publishing Ltd, vol. 12(3), pages 375-406. [Downloadable!] (restricted)
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    Other versions:
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    Other versions:
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