IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v13y2010i4p448-474.html
   My bibliography  Save this article

Daily institutional trades and stock price volatility in a retail investor dominated emerging market

Author

Listed:
  • Li, Wei
  • Wang, Steven Shuye

Abstract

We examine the short-run dynamic relation between daily institutional trading and stock price volatility in a retail investor-dominated emerging market. We find a significantly negative relation between volatility and institutional net trading that is mainly due to the unexpected institutional trading. The price volatility-institutional trade relation differs for institutional buys and institutional sells, and for small and large stocks. Institutional investors herd-trade in large stocks, but do not systematically engage in positive-feedback trading. We argue that the net impact of informational and noninformational institutional trades determines the relation between volatility and institutional trading, and that the relation is negative when informational trading by institutions prevails.

Suggested Citation

  • Li, Wei & Wang, Steven Shuye, 2010. "Daily institutional trades and stock price volatility in a retail investor dominated emerging market," Journal of Financial Markets, Elsevier, vol. 13(4), pages 448-474, November.
    • Handle: RePEc:eee:finmar:v:13:y:2010:i:4:p:448-474
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1386-4181(10)00024-8
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chan, Kalok & Fong, Wai-Ming, 2000. "Trade size, order imbalance, and the volatility-volume relation," Journal of Financial Economics, Elsevier, vol. 57(2), pages 247-273, August.
    2. M. J. Brennan, 1995. "The Individual Investor," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(1), pages 59-74, March.
    3. Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
    4. Laurie Simon Hodrick & Pamela C. Moulton, 2009. "Liquidity: Considerations of a Portfolio Manager," Financial Management, Financial Management Association International, vol. 38(1), pages 59-74, March.
    5. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-395, June.
    6. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
    7. Aggarwal, Raj & Rao, Ramesh P, 1990. "Institutional Ownership and Distribution of Equity Returns," The Financial Review, Eastern Finance Association, vol. 25(2), pages 211-229, May.
    8. John M. Griffin & Jeffrey H. Harris & Selim Topaloglu, 2003. "The Dynamics of Institutional and Individual Trading," Journal of Finance, American Finance Association, vol. 58(6), pages 2285-2320, December.
    9. Jennifer Huang & Jiang Wang, 2009. "Liquidity and Market Crashes," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2407-2443, July.
    10. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
    11. Barberis, Nicholas & Shleifer, Andrei, 2003. "Style investing," Journal of Financial Economics, Elsevier, vol. 68(2), pages 161-199, May.
    12. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 229-259.
    13. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
    14. Xuemin (Sterling) Yan & Zhe Zhang, 2009. "Institutional Investors and Equity Returns: Are Short-term Institutions Better Informed?," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 893-924, February.
    15. Doron Avramov & Tarun Chordia & Amit Goyal, 2006. "The Impact of Trades on Daily Volatility," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1241-1277.
    16. Chiraphol N. Chiyachantana & Pankaj K. Jain & Christine Jiang & Robert A. Wood, 2004. "International Evidence on Institutional Trading Behavior and Price Impact," Journal of Finance, American Finance Association, vol. 59(2), pages 869-898, April.
    17. Falkenstein, Eric G, 1996. " Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings," Journal of Finance, American Finance Association, vol. 51(1), pages 111-135, March.
    18. Ron Kaniel & Gideon Saar & Sheridan Titman, 2008. "Individual Investor Trading and Stock Returns," Journal of Finance, American Finance Association, vol. 63(1), pages 273-310, February.
    19. Hasbrouck, Joel, 1991. "The Summary Informativeness of Stock Trades: An Econometric Analysis," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 571-595.
    20. Bessembinder, Hendrik & Seguin, Paul J, 1992. " Futures-Trading Activity and Stock Price Volatility," Journal of Finance, American Finance Association, vol. 47(5), pages 2015-2034, December.
    21. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1990. "Speculative Dynamics and the Role of Feedback Traders," American Economic Review, American Economic Association, vol. 80(2), pages 63-68, May.
    22. Grier, Paul C & Albin, Peter S, 1973. "Nonrandom Price Changes in Association with Trading in Large Blocks," The Journal of Business, University of Chicago Press, vol. 46(3), pages 425-433, July.
    23. De Long, J Bradford & Shleifer, Andrei & Summers, Lawrence H & Waldmann, Robert J, 1991. "The Survival of Noise Traders in Financial Markets," The Journal of Business, University of Chicago Press, vol. 64(1), pages 1-19, January.
    24. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-651.
    25. Sassan Alizadeh & Michael W. Brandt & Francis X. Diebold, 2002. "Range-Based Estimation of Stochastic Volatility Models," Journal of Finance, American Finance Association, vol. 57(3), pages 1047-1091, June.
    26. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    27. John R. Nofsinger & Richard W. Sias, 1999. "Herding and Feedback Trading by Institutional and Individual Investors," Journal of Finance, American Finance Association, vol. 54(6), pages 2263-2295, December.
    28. Karpoff, Jonathan M., 1987. "The Relation between Price Changes and Trading Volume: A Survey," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(1), pages 109-126, March.
    29. S.G. Badrinath & Sunil Wahal, 2002. "Momentum Trading by Institutions," Journal of Finance, American Finance Association, vol. 57(6), pages 2449-2478, December.
    30. Sias, Richard W. & Starks, Laura T., 1997. "Return autocorrelation and institutional investors," Journal of Financial Economics, Elsevier, vol. 46(1), pages 103-131, October.
    31. Kraus, Alan & Stoll, Hans R, 1972. "Price Impacts of Block Trading on the New York Stock Exchange," Journal of Finance, American Finance Association, vol. 27(3), pages 569-588, June.
    32. Chopra, Navin & Lakonishok, Josef & Ritter, Jay R., 1992. "Measuring abnormal performance : Do stocks overreact?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 235-268, April.
    33. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June.
    34. Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-168, February.
    35. Jiang Wang, 1993. "A Model of Intertemporal Asset Prices Under Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 249-282.
    36. Keim, Donald B & Madhaven, Ananth, 1996. "The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 1-36.
    37. Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, April.
    38. Coval, Joshua & Stafford, Erik, 2007. "Asset fire sales (and purchases) in equity markets," Journal of Financial Economics, Elsevier, vol. 86(2), pages 479-512, November.
    39. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    40. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    41. Scholes, Myron S, 1972. "The Market for Securities: Substitution versus Price Pressure and the Effects of Information on Share Prices," The Journal of Business, University of Chicago Press, vol. 45(2), pages 179-211, April.
    42. Chordia, Tarun & Subrahmanyam, Avanidhar, 2004. "Order imbalance and individual stock returns: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 72(3), pages 485-518, June.
    43. Chan, Louis K. C. & Lakonishok, Josef, 1993. "Institutional trades and intraday stock price behavior," Journal of Financial Economics, Elsevier, vol. 33(2), pages 173-199, April.
    44. Hirshleifer, David & Subrahmanyam, Avanidhar & Titman, Sheridan, 1994. " Security Analysis and Trading Patterns When Some Investors Receive Information before Others," Journal of Finance, American Finance Association, vol. 49(5), pages 1665-1698, December.
    45. repec:hrv:faseco:30747193 is not listed on IDEAS
    46. Almazan, Andres & Brown, Keith C. & Carlson, Murray & Chapman, David A., 2004. "Why constrain your mutual fund manager?," Journal of Financial Economics, Elsevier, vol. 73(2), pages 289-321, August.
    47. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
    48. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    49. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
    50. Aneel Keswani & David Stolin, 2008. "Which Money Is Smart? Mutual Fund Buys and Sells of Individual and Institutional Investors," Journal of Finance, American Finance Association, vol. 63(1), pages 85-118, February.
    51. Busse, Jeffrey A, 1999. "Volatility Timing in Mutual Funds: Evidence from Daily Returns," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1009-1041.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chien, Cheng-Yi & Lee, Hsiu-Chuan & Tai, Shih-Wen & Liao, Tzu-Hsiang, 2013. "Information, hedging demand, and institutional investors: Evidence from the Taiwan Futures Exchange," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 394-414.
    2. Tian, Shu & Wu, Eliza & Wu, Qiongbing, 2018. "Who exacerbates the extreme swings in the Chinese stock market?," International Review of Financial Analysis, Elsevier, vol. 55(C), pages 50-59.
    3. Ros Zam Zam Sapian & Jing Quan Lee, 2018. "Return, Volatility and Equity Fund Flows Linkages: Evidence from an Emerging Market," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(7), pages 172-186, July.
    4. Ülkü, Numan & Weber, Enzo, 2013. "Identifying the interaction between stock market returns and trading flows of investor types: Looking into the day using daily data," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2733-2749.
    5. Thomas, Ashok & Spataro, Luca & Mathew, Nanditha, 2014. "Pension funds and stock market volatility: An empirical analysis of OECD countries," Journal of Financial Stability, Elsevier, vol. 11(C), pages 92-103.
    6. Umutlu, Mehmet & Shackleton, Mark B., 2015. "Stock-return volatility and daily equity trading by investor groups in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 43-70.
    7. Kim, Sei-Wan & Lee, Bong-Soo & Kim, Young-Min, 2014. "Who mimics whom in the equity fund market? Evidence from the Korean equity fund market," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 199-218.
    8. Guglielmo Maria Caporale & Menelaos Karanasos & Stavroula Yfanti & Aris Kartsaklas, 2019. "Investors' Trading Behaviour and Stock Market Volatility during Crisis Periods: A Dual Long-Memory Model for the Korean Stock Exchange," CESifo Working Paper Series 7984, CESifo Group Munich.
    9. Qureshi, Fiza & Kutan, Ali M. & Ismail, Izlin & Gee, Chan Sok, 2017. "Mutual funds and stock market volatility: An empirical analysis of Asian emerging markets," Emerging Markets Review, Elsevier, vol. 31(C), pages 176-192.
    10. Ahmed, Walid M.A., 2017. "The impact of foreign equity flows on market volatility during politically tranquil and turbulent times: The Egyptian experience," Research in International Business and Finance, Elsevier, vol. 40(C), pages 61-77.
    11. Yang, Chunpeng & Jia, Yun, 2016. "Buy-sell imbalance and the mean-variance relation," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 49-58.
    12. repec:aio:manmar:v:xv:y:2017:i:2:p:59-69 is not listed on IDEAS
    13. Ikizlerli, Deniz & Holmes, Phil & Anderson, Keith, 2019. "The response of different investor types to macroeconomic news," Journal of Multinational Financial Management, Elsevier, vol. 50(C), pages 13-28.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finmar:v:13:y:2010:i:4:p:448-474. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/finmar .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.