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Stock-return volatility and daily equity trading by investor groups in Korea

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  • Umutlu, Mehmet
  • Shackleton, Mark B.

Abstract

We examine the short-run relationship between stock-return volatility and daily equity trading by several investor groups in the Korean Stock Exchange. We also investigate whether trade characteristics and trading styles can explain the potential distinct volatility effects of these investor groups. For large stocks, we find that whether a trade is a purchase or a sale and whether it is a contrarian or a momentum trade does not play a role in the relation between volatility and trading. It is the trading of informed institutional investors against non-informed individual investors that drives volatility and produces a negative volatility effect. We further show that net foreign trading has an increasing impact on volatility though it is not always significant. Our results are robust to alternative measures of volatility and obtained after controlling for volatility persistency, total volume and lagged stock returns.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:pacfin:v:34:y:2015:i:c:p:43-70
    DOI: 10.1016/j.pacfin.2015.05.003
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    Cited by:

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    2. Vo, Xuan Vinh, 2017. "Trading of foreign investors and stock returns in an emerging market - Evidence from Vietnam," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 88-93.
    3. Pramod Kumar Naik & Imlak Shaikh & Toan Luu Duc Huynh, 2022. "Institutional investment activities and stock market volatility amid COVID-19 in India," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 1542-1560, December.
    4. Deniz ikizlerli, 2020. "Institutional investors and stock market volatility. Evidence from Korea," Applied Economics Letters, Taylor & Francis Journals, vol. 27(6), pages 473-476, March.
    5. Guglielmo Maria Caporale & Menelaos Karanasos & Stavroula Yfanti & Aris Kartsaklas, 2021. "Investors' trading behaviour and stock market volatility during crisis periods: A dual long‐memory model for the Korean Stock Exchange," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4441-4461, July.
    6. Naufa, Ahmad Maulin & Lantara, I Wayan Nuka & Lau, Wee-Yeap, 2019. "The impact of foreign ownership on return volatility, volume, and stock risks: Evidence from ASEAN countries," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 221-235.
    7. Yamani, Ehab, 2023. "Return–volume nexus in financial markets: A survey of research," Research in International Business and Finance, Elsevier, vol. 65(C).
    8. Boubekeur Baba & Guven Sevil, 2020. "The behavior of stock market prices throughout the episodes of capital inflows," Papers 2008.13472, arXiv.org.
    9. 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.
    10. Chung, Chune Young & Wang, Kainan, 2016. "The impact of individual investor trading on information asymmetry in the Korean stock market," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 472-484.

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    More about this item

    Keywords

    Stock-return volatility; Trading; Investor groups;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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