The trading behavior and price impact of foreign, institutional, individual investors and government: Evidence from Korean equity market

Purpose The purpose of this paper is to propose a novel and new direct measurement of small investor sentiment in the equity market. The sentiment is based on the individual investors’ internet search activity. Design/methodology/approach The author measures unexpected changes in the small investor sentiment with AR (1) process, where the residuals capture the unexpected changes in small investor sentiment. The author employs vector autoregressive, Granger causality and linear regression models to estimate the association between the unexpected changes in small investor sentiment and future equity market returns. Findings An unexpected increase in the search popularity of the term bear market is negatively associated with the following week’s equity market returns. An unexpected increase in the spread (the difference in popularities between a bull market and a bear market) is positively associated with the following week’s equity market returns. The author finds that these effects are stronger for small-sized companies. Originality/value By author’s knowledge, the paper is the first that measures the small investor sentiment that is based on the internet search activity for keywords used in the American Association of Individual Investor’s (AAII) survey questions. The paper proposes an alternative small investor sentiment measure that captures the changes in small investor sentiment in more timely fashion than the AAII survey.

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Managers’ and Investors’ Responses to Media Exposure of Board Ineffectiveness

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109009990044 ◽

2009 ◽

Vol 44 (3) ◽

pp. 579-605 ◽

Cited By ~ 114

Author(s):

Jennifer R. Joe ◽

Henock Louis ◽

Dahlia Robinson

Keyword(s):

Media Exposure ◽

Shareholder Wealth ◽

Economic Consequences ◽

Individual Investors ◽

Corporate Boards ◽

Trading Behavior ◽

Economic Agents ◽

Noisy Information ◽

Corrective Actions ◽

The Impact

AbstractWe analyze the impact of the press on the behavior of various economic agents by examining how media exposure of board ineffectiveness affects corporate governance, investor trading behavior, and security prices. Our focus on board quality is motivated by the strong media criticism to which corporate boards and corporate America, in general, have been recently subjected. The results indicate that media releases of (noisy) information have significant economic consequences. In particular, media exposure of board ineffectiveness forces the targeted agents to take corrective actions and enhances shareholder wealth. Individual investors appear to react negatively to the media exposure, whereas investment firms act as if they anticipate the targeted firms’ corrective actions.

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Interactions among High-Frequency Traders

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109017000485 ◽

2017 ◽

Vol 52 (4) ◽

pp. 1375-1402 ◽

Cited By ~ 9

Author(s):

Evangelos Benos ◽

James Brugler ◽

Erik Hjalmarsson ◽

Filip Zikes

Keyword(s):

High Frequency ◽

Comparison Group ◽

Equity Market ◽

Price Impact ◽

Investment Banks ◽

Order Flow ◽

Trading Activity ◽

Price Efficiency ◽

Price Pressure ◽

The Impact

Using unique transactions data for individual high-frequency trading (HFT) firms in the U.K. equity market, we examine the extent to which the trading activity of individual HFT firms is correlated with each other and the impact on price efficiency. We find that HFT order flow, net positions, and total volume exhibit significantly higher commonality than those of a comparison group of investment banks. However, intraday HFT order flow commonality is associated with a permanent price impact, suggesting that commonality in HFT activity is information based and so does not generally contribute to undue price pressure and price dislocations.

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Do Investors Herd: Evidence from an Emerging Market

Lahore Journal of Business ◽

10.35536/ljb.2018.v6.i2.a2 ◽

2018 ◽

Vol 6 (2) ◽

pp. 27-46

Author(s):

Safi Ullah Khan ◽

Muhammad Faisal Rizwan

Keyword(s):

Stock Price ◽

Linear Models ◽

Emerging Market ◽

Equity Market ◽

Individual Investors ◽

Herd Behavior ◽

Trading Patterns ◽

Non Linear ◽

Low Levels ◽

Two Sectors

Employing stock price data from a developing market, we examine whether investors’ trading patterns are characterized as herd behavior at the market and industry levels. Unlike results for some developing markets, linear models of herd behavior find no evidence of herd formation, in any of the sectors, during periods of large market movements. However, non-linear models find significant non-linear herding behavior only for two sectors of the whole sample, and when we group the sub-samples based on up and down market movements. Overall, empirical results tend to support the notion of no herd formation in Pakistan’s market. Two main explanations may be offered for the results: first, a developing market, characterized by thin trading and low turnover, with few of the stocks from various sectors actively traded in the market. Second, individual investors that dominate Pakistan’s equity market and low levels of institutional investor’s presence preclude herd formations.

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The KOSPI200 Index Option Trading Behavior and Performance of Individual Investors

Journal of Derivatives and Quantitative Studies ◽

10.1108/jdqs-01-2005-b0005 ◽

2005 ◽

Vol 13 (1) ◽

pp. 99-127

Author(s):

Jay M. Chung ◽

Jae Keun Kim

Keyword(s):

Stock Exchange ◽

Individual Investors ◽

Sample Period ◽

Trading Behavior ◽

Option Trading ◽

Period Data ◽

And Performance ◽

The Individual ◽

Short Time ◽

Index Option

We examine the argument of the Financial Supervisory Service that the behavior of the Individual Investors to buy an out-of-the-money option is excessively speculative. The FSS reported that the individual investors incurred huge losses in the trading of KOSPI200 index options for the years 2002 and 2003. But since the sample period is relatively short, the argument does not seem fully convincing. Using a longer period data from July 1997 to December 2003, we reconfirm the huge losses of the Individual investors and also find that a tendency of individual investors losing money in association with option trading perSisted during the longer period. The individual investors chose out-of-the money options with short time to maturity, that are cheap and thus are expected to make huge profits with very low probabilities. Finally, we tind that out-ot-the money options with short time to maturity turn out to be in general priced higher than what the Korea Stock Exchange model suggests. The practice of purchasing out-of-the-money options for the reason of cheap prices and huge profit possibilities can be regarded as being excessively speculative. Due to overpricing, the individual investors persistently incurred some losses.

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The Variation in Variance Risk Premium and its Predictive Power: Evidence from Option Market Sentiments

Quarterly Journal of Finance ◽

10.1142/s201013922050010x ◽

2020 ◽

Vol 10 (03) ◽

pp. 2050010

Author(s):

Y. Peter Chung ◽

Sun-Joong Yoon

Keyword(s):

Risk Premium ◽

Predictive Power ◽

Investor Sentiment ◽

Individual Investors ◽

Trading Behavior ◽

Variance Risk Premium ◽

The Poor ◽

Variance Risk ◽

Return Dynamics ◽

The U.S

We show that the highly volatile variance risk premium (VRP) can be theoretically and empirically reconciled with investor sentiment captured by temporary variation in risk aversion. In an effort to understand the poor predictive power of the VRP in non-U.S. markets, we propose a new investor sentiment index, the Variance Sentiment Index(VSI), obtained from the trading behavior of individual investors. We show that the VSI predicts local return dynamics, in a similar way to what the VRP does in the U.S. market. Moreover, the VSI does not lose its predictive power even in the presence of the global VRP.

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