Private Information and Trading Behavior: KOSPI200 Futures Markets

2015 ◽  
Vol 23 (2) ◽  
pp. 207-241
Author(s):  
Taewoo Daniel Kim ◽  
Kiyool Ohk
Keyword(s):  
Private Information ◽  
Regime Switching ◽  
Futures Markets ◽  
Individual Investors ◽  
Trading Behavior ◽  
Foreign Investors ◽  
Market Participants ◽  
Order Imbalance ◽  
Contrarian Strategies ◽  
Informed Traders

The study examines whether the trader’s order imbalance for KOSPI200 futures can explain their informativeness. I use daily positions of various types of futures market participants such as foreign investors, institution investors, and individual investors to identify informed traders. The positions of foreign investors, institution investors and individual investors are correlated with returns in KOSPI200 futures markets, but there is some debate as the interpretation of such a relationship. I find that the foreign investors’ position is informative to investors, supporting the private information view. In terms of trader’s behavior, foreign traders follow contrarian strategies and trade with higher information than individual and institutional traders, who trade as momentum. Also, I considering regime switching effects in this frameworks. In threshold regression models, I found a different behavior during futures return expansions and contractions or volatility expansions and contractions.

Information Structure, Trading Behavior and Stock Prices in the Thai Market

1998 ◽  
Vol 01 (03) ◽  
pp. 321-353 ◽  
Author(s):  
Anya Khanthavit
Keyword(s):  
Institutional Investors ◽  
Stock Prices ◽  
Information Structure ◽  
Stock Return ◽  
Emerging Market ◽  
Individual Investors ◽  
Herd Behavior ◽  
Trading Behavior ◽  
Foreign Investors ◽  
Noisy Information

This study examines the information and trading behavior of investors in the Thai market. This market is an important emerging market in the Pacific Rim, whose structure is different from that of a more developed market. We propose a vector autoregression model to describe and test action and reaction of the portfolio reallocation of investors and the movement of stock prices over time. Using daily market data from January 3, 1995 to October 27 1997 , this study finds that, in the Thai market, the foreign investors bought stocks when prices had risen. This strategy was consistent with a positive autocorrelation in the stock return. The local individual investors bought stocks when prices had fallen, while the local institutional investors disregarded past price changes. These two investor groups also exhibited herd behavior of both informational cascades and interpersonal communications types. They followed each other and reacted negatively to an innovation in the stock return. It is interesting to find that the foreign investors brought new information into the market. The local individual and local institutional investors brought in noise, but the explanatory share of this noisy information in the stock volatility was small. So, the study concludes that the volatility in the Thai market was not excessive.

Who Drive the Rise and Fall of the Bubbles in Korean Stock Market?

2017 ◽  
Vol 25 (4) ◽  
pp. 591-622
Author(s):  
Bong-Chan Kho ◽  
Jin-Woo Kim
Keyword(s):  
Stock Market ◽  
Institutional Investors ◽  
Risk Model ◽  
Early Stage ◽  
Disposition Effect ◽  
Individual Investors ◽  
Foreign Investors ◽  
Peak Point ◽  
Korean Stock Market ◽  
Informed Traders

In this paper, we analyze the trading patterns of investors around the bubble events selected for stocks traded in Korean Stock Market from 1999 to 2013, whose holding period returns exceed 200% for 250 trading days prior to the event and then drop subsequently below -50% thereafter for the next 250 trading days. We examine whether individual investors, commonly known as noise traders, drive the bubbles, and whether institutional investors and foreign investors, known as informed traders, take an arbitrage position to shrink the pricing errors or ride the bubbles to maximize their profits. We also examine whether individual investors suffer losses due to their disposition effect even after the bubble bursts. Major findings of this paper are as follows : First, we find that individual investors are actually shown to drive the bubbles in our full sample, whereas the burst of the bubbles are largely driven by institutional investors and foreign investors. In particular, it is shown for large-cap stocks that foreign investors take the lead in raising the price at an early stage of the bubbles and then institutional investors follow them until the bubble peak point. Second, for mid-cap and large-cap stocks, institutional investors are found to ride the bubbles from about 75 days prior to the bubble peak point, when foreign investors reverse their trades and start selling to realize profits. Such bubble riding behavior of institutional investors is consistent with the synchronization risk model of Abreu and Brunnermeier (2002, 2003), where it is optimal for informed traders to ride the bubbles until all of informed traders start selling at the bubble peak point. Third, individual investors are found to suffer losses as they keep buying the bubble stocks even after the bubble bursts due to their disposition effect.

scholarly journals TRADING BEHAVIOR AND ASSET PRICING UNDER HETEROGENEOUS EXPECTATIONS

2005 ◽  
Vol 7 (1) ◽  
pp. 15
Author(s):  
R. Agus Sartono
Keyword(s):  
Cash Flow ◽  
Private Information ◽  
Information Acquisition ◽  
Total Error ◽  
Weighted Average ◽  
Trading Behavior ◽  
Heterogeneous Expectations ◽  
Informed Traders ◽  
The Impact ◽  
Period Model

This research models trading behavior and examines the impact of heterogeneous expectations on asset prices. We extend Kyle’s (1985) one-period model to two-period model. The model shows that the informed trader takes into account not only the private information but also the pricing function. The price is an increasing function of the volatility of the asset value and decreasing in the volatility of uninformed traders’ demand. The costly information acquisition has an impact on the optimum demand but it has no direct impact on the price.We find the market depth is a linear function of the volatility of the uninformed traders and a weighted average of the total error variance of information. The depth is also decreasing in the volatility of the cash flow innovations. This argument is in line with the second finding, when the volatility of cash flow innovations increases, the value of risky asset becomes more volatile, and as a result the bigger are the advantages of having private information. Our research raises some questions for further investigation. We indirectly assume that the informed traders make a profit at the expense on the uninformed traders. The question is why the uninformed traders willing to face losses? What happen if there are n informed traders who have diverse information?

The Impact of Analyst Following on Stock Prices and the Implications for Firms' Disclosure Policies

1996 ◽  
Vol 11 (3) ◽  
pp. 333-354 ◽  
Author(s):  
Brett Trueman
Keyword(s):  
Private Information ◽  
Stock Prices ◽  
Direct Consequence ◽  
Share Price ◽  
Positive Relation ◽  
Analyst Following ◽  
Market Participants ◽  
Precision Level ◽  
Informed Traders ◽  
The Impact

This paper shows that there is a positive relation between the number of analysts following a firm and the firm's expected share price. This relation is a direct consequence of market participants' inability to observe the number of informed traders in the market. It is further shown that a firm's manager can have an impact on analyst following by varying the precision of the private information analysts obtain about the firm. In equilibrium, the manager will choose a precision level greater than that which maximizes analyst following, but, in many cases, less than its largest possible value.

scholarly journals Feedback Effects, Asymmetric Trading, and the Limits to Arbitrage

2015 ◽  
Vol 105 (12) ◽  
pp. 3766-3797 ◽  
Author(s):  
Alex Edmans ◽  
Itay Goldstein ◽  
Wei Jiang
Keyword(s):  
Private Information ◽  
Firm Value ◽  
Bad News ◽  
Good News ◽  
Asymmetric Effect ◽  
Trading Behavior ◽  
Feedback Effects ◽  
Limits To Arbitrage ◽  
Corporate Decisions ◽  
Fundamental Value

We analyze strategic speculators’ incentives to trade on information in a model where firm value is endogenous to trading, due to feedback from the financial market to corporate decisions. Trading reveals private information to managers and improves their real decisions, enhancing fundamental value. This feedback effect has an asymmetric effect on trading behavior: it increases (reduces) the profitability of buying (selling) on good (bad) news. This gives rise to an endogenous limit to arbitrage, whereby investors may refrain from trading on negative information. Thus, bad news is incorporated more slowly into prices than good news, potentially leading to overinvestment. (JEL D83, G12, G14)

Policy Uncertainty and Accounting Quality

2020 ◽  
Author(s):  
Sadok El Ghoul ◽  
Omrane Guedhami ◽  
Yongtae Kim ◽  
Hyo Jin Yoon
Keyword(s):  
Discretionary Accruals ◽  
Policy Uncertainty ◽  
Accounting Quality ◽  
Trading Behavior ◽  
Negative Effects ◽  
Media Freedom ◽  
Market Participants ◽  
Alternative Measures ◽  
And Performance ◽  
Using Data

Using data from 19 countries over the 1990-2015 period, we examine how economic policy uncertainty (EPU) affects accounting quality. We find that accounting quality, measured based on Nikolaev's (2018) model, increases during periods of high policy uncertainty. This relation is confirmed by the negative association between EPU and performance-adjusted discretionary accruals in a multivariate setting, and it extends to various alternative measures of earnings properties. We also find that the positive relation between EPU and accounting quality is more pronounced for government-dependent firms and firms with higher political risk. Additional analyses based on institutional investors' trading behavior, media freedom, and press circulation suggest that market participants' attention is a mechanism through which EPU affects accounting quality. Further, we find evidence that high accounting quality can mitigate the negative effects of EPU on corporate investment and valuation.

Empirical Study on the Maturity Structures of the Volatility in the KOSPI200 Index and Futures Returns

2006 ◽  
Vol 14 (2) ◽  
pp. 1-23
Author(s):  
Jong In Yoon
Keyword(s):  
Spot Market ◽  
Futures Market ◽  
Individual Investors ◽  
Foreign Investors ◽  
Volatility Clustering ◽  
Maturity Structure ◽  
Maturity Date ◽  
The Individual ◽  
Bivariate Garch Model ◽  
Samuelson Hypothesis

This study analyzes the maturity structure of the volatility in the KOSPI200 index and futures returns. Using bivariate GARCH model, we obtain the empirical evidences that the maturity structure of the volatility is U-shaped unlike the well-known Samuelson effect. Remarkably. U-shaped structures are found not only in the futures market but also in the spot market These evidences imply that returns are more volatile around tile futures maturity date in both markets. Some explanations are suggested about U-shaped maturity structures. First, under Samuelson hypothesis it is possible to show that the volatilities are high around the maturity date because of the volatility clustering and the volatility spill-over. Second, we try the regression of the volatility on variables such as the proportion of the individual investors, the foreign investors, and the program trading. These variables are U-shaped or inverse U-shaped due to the remaining maturity. Only before 2000, it is found that the proportions of the foreign investors and the program trading are compatible with U-shaped volatility structures.

Price Momentum in Korea and the Effect of Investors’ Trading

2019 ◽  
Vol 27 (3) ◽  
pp. 329-364
Author(s):  
Kyoim Lee
Keyword(s):  
Positive Feedback ◽  
Institutional Investors ◽  
Individual Investors ◽  
Price Setting ◽  
Medium Term ◽  
Foreign Investors ◽  
Price Momentum ◽  
Momentum Profits ◽  
Large Size ◽  
Feedback Trading

This study investigates domestic individual, institutional and foreign investors’ trading, to test Hong and Stein (1999)’s behavioral explanation that momentum profit is generated as some uninformed investors underreact to information on medium-term prices. Using Hvidkjaer (2006)’s methodology, we examine the respective investors’ trading tendencies reflected in their active price-setting orders. We analyze a special database compiling details on every transaction for the stocks listed on the KSE during 1996:12~2009:08. During 2001~2007, individual investors’ underreaction in trading large-size winner stocks contributes to positive momentum profits. They seem to induce weak negative profits to emerge in 1997~2000, too. Foreign investors underreact to small-size loser stocks, incurring positive momentum profits during 2001~2007. They engage in positive feedback trading, when they trade large-size winner stocks. This trading tendency does not seem to be based on information on firm fundamentals, as we find those winner stocks’ returns are not sustained. Institutional investors’ trading seems to be relatively in line with future returns, but evidences are not strong enough to support they are informed investors. Overall, the behavioral hypothesis on investors’ underreaction seems to explain medium-term momentum profits in Korea, but evidences differing across subsamples suggest possibility of other unknown influences.

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

2009 ◽  
Vol 44 (3) ◽  
pp. 579-605 ◽  
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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