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.

scholarly journals Institutional ownership, equity return and price momentum anomaly

2011 ◽  
Vol 9 (1) ◽  
pp. 305-318
Author(s):  
Jiun-Lin Chen ◽  
Hsiao-Fen Yang
Keyword(s):  
Size Effect ◽  
Empirical Result ◽  
Positive Feedback ◽  
Institutional Investors ◽  
Institutional Ownership ◽  
Individual Investors ◽  
Institutional Trading ◽  
Price Momentum ◽  
Institutional Holdings ◽  
Momentum Profits

This paper examines whether momentum profit and institutional holdings are related. The empirical result shows that after controlled for the size effect, momentum profits are positively related to institutional holdings, especially for small-capitalization firms. Our finding confirms that institution investors tend to have positive-feedback trading in smaller firms. Furthermore, we find that the equity return is positively related to the institutional trading, which supports the hypothesis that institutional investors are better informed than individual investors.

scholarly journals Bayesian analysis of time-varying interactions between stock returns and foreign equity flows

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Boubekeur Baba ◽  
Güven Sevil
Keyword(s):  
Stock Returns ◽  
Negative Feedback ◽  
Positive Feedback ◽  
Positive Response ◽  
Time Varying ◽  
Economic Uncertainty ◽  
Foreign Investors ◽  
New Findings ◽  
Net Flows ◽  
Feedback Trading

AbstractThis study discusses the trading behavior of foreign investors with respect to economic uncertainty in the South Korean stock market from a time-varying perspective. We employ a news-based measure of economic uncertainty along with the model of time-varying parameter vector autoregression with stochastic volatility. The empirical analysis reveals several new findings about foreign investors’ trading behaviors. First, we find evidence that positive feedback trading often appears during periods of high economic uncertainty, whereas negative feedback trading is exclusively observable during periods of low economic uncertainty. Second, the foreign investors’ feedback trading appears mostly to be well-timed and often leads the time-varying economic uncertainty except in periods of global crises. Third, lagged negative (positive) response of net flows to economic uncertainty is found to be coupled with lagged positive (negative) feedback trading. Fourth, the study documents an asymmetric response of foreign investors with regard to negative and positive shocks of economic uncertainty. Specifically, we find that they instantly turn to positive feedback trading after a negative contemporaneous response of net flows to shocks of economic uncertainty. In contrast, they move slowly toward negative feedback trading after a positive response of net flows to uncertainty shocks.

scholarly journals A comprehensive investigation into style momentum strategies in China

2020 ◽  
Author(s):  
Chen Su
Keyword(s):  
Stock Market ◽  
Institutional Investors ◽  
Short Sales ◽  
Comprehensive Investigation ◽  
Momentum Strategies ◽  
Style Investing ◽  
Price Momentum ◽  
Institutional Settings ◽  
Momentum Profits ◽  
China Stock Market

AbstractThis study conducts a comprehensive investigation into style momentum strategies—the combination of price momentum strategies based on previous medium-term returns and style investing in terms of firm characteristics—in the China stock market over the period 1994 to 2017. Although we do not find style momentum profits over the first sub-period 1994 to 2006, strong evidence shows that style momentum strategies are profitable over the second sub-period 2007 to 2017, even after controlling for trading costs and various market and firm-specific risks. Importantly, the observed style momentum in the second sub-period is distinguished from price momentum and industry momentum but could be attributed to the improved institutional settings in recent years. Specifically, the fast growth of institutional investors since 2006, along with the introduction of margin trading and short sales in 2010, provides style switchers with more efficient investment vehicles to trade an entire style in the China stock market. Finally, we find that style profits exhibit momentum in a cyclical nature; in particular, style momentum profits are negatively related to market states, implying that it is likely for institutional investors to make profits by constructing style momentum strategies when stock market experiences a major decline.

A CLOSER LOOK AT THE CHARACTERISTICS OF STOCK HOLDINGS OF FOREIGN AND LOCAL INVESTORS IN THE INDONESIAN STOCK EXCHANGE (IDX)

2013 ◽  
Vol 08 (01) ◽  
pp. 1350002 ◽  
Author(s):  
JOSEPHINE SUDIMAN ◽  
DAVID ALLEN ◽  
ROBERT POWELL
Keyword(s):  
Institutional Investors ◽  
Stock Exchange ◽  
Individual Investors ◽  
Foreign Investors ◽  
Market Capitalization ◽  
Price Levels

This study provides an overview of the characteristics of stockholdings of foreign and local investors in terms of firm sizes, price levels and liquidity. There are four key findings. First, the IDX is a highly concentrated market and foreign investors dominate the ownership of high market capitalization stocks. Second, foreign investors trade less frequently than domestic counterparts. Third, small, illiquid lower priced stocks dominate this market with domestic individual investors holding most of the stocks with these characteristics. Finally, the paper profits of foreign institutional and domestic individual investors are found to be higher than those of domestic institutional investors.

The Expiration Day Effects of Single Stock Futures : Evidence from Korea

2017 ◽  
Vol 25 (3) ◽  
pp. 451-478
Author(s):  
Shiyong Yoo
Keyword(s):  
Institutional Investors ◽  
Stock Prices ◽  
Trading Volume ◽  
Volume Effect ◽  
Individual Investors ◽  
Foreign Investors ◽  
Reversal Effect ◽  
Price Reversal ◽  
Price Shock ◽  
Single Stock Futures

In this study, we analyzed whether the expiration day effect of domestic single stock futures exists. One-minute stock prices and trading volume by trader types is used. Data ranges from May 2008 to June 2016. The expiration day effects are measured by price reversal, price shock, volatility effect, and volume effect. Since the expiration day of single stock futures is on the second Thursday of each month, we analyzed whether the expiration day effects differ between expiration Thursday and non-expiration Thursday. The price reversal effect is evident in Samsung Electronics and Hyundai Steel, and the price shock effect is evident for KT and KT&G. However, price reversals and price shocks are not generally found in other stocks. On the other hand, in most stocks (16 out of 22), the volatility effect variables were statistically significantly larger on the expiration Thursday than non-expiration Thursday. The expiration day effects of single stocks are evident in the trading volume. First of all, trading volume increased significantly on expiration Thursday than non-expiration Thursday. In particular, the trading-volume shares of institutional investors and foreign investors increase and the share of individual investors is decreasing. This suggests that the increase in trading volume on expiration Thursday is mainly due to the increase in the trading-volume shares of institutional investors and foreign investors, who are supposed to be in the information superiority. In addition, we can conjecture that the larger volatility level on expiration Thursday than on non-expiration Thursday may be due to institutional investors and foreign investors rather than individual investors.

Volatility–Volume Relationships Among Types of Traders Considering the Investment Limitation to Foreign Investors

2006 ◽  
Vol 09 (04) ◽  
pp. 575-596 ◽  
Author(s):  
Ching-Mann Huang ◽  
Tsai-Yin Lin ◽  
Chih-Hsien Yu ◽  
Si-Ying Hoe
Keyword(s):  
Stock Market ◽  
Institutional Investors ◽  
Trading Volume ◽  
Individual Investors ◽  
Volume Data ◽  
Foreign Investors ◽  
Volume Relationship ◽  
Before And After ◽  
The Individual

This paper examines the volatility–volume relationship in Taiwan stock market, using volume data categorized by type of trader. We consider before and after our event period of lifting the investment restrictions for foreign investors. We partition trading volume into expected and unexpected volume and find that the unexpected volume shocks for individual investors are more important than the expected volume shocks in explaining volatility before lifting the investment restrictions for the foreign investors. We find that the positive volatility–volume relationship is driven by the individual investors even during the period of the lifting of investment restrictions for foreign investors. However, with respect to institutional investors, before the removal of investment restrictions for foreign investors, the unexpected volume of trading of the domestic dealers exhibit positive volatility–volume relationship. Further, after the removal of investment restrictions, the unexpected volume of the foreign investors has a positive volatility–volume relationship.

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.

The Dynamics of Trades and Quote Revisions Across Stock, Futures, and Option Markets

2008 ◽  
Vol 11 (02) ◽  
pp. 227-254 ◽  
Author(s):  
Jangkoo Kang ◽  
Hyoung-Jin Park
Keyword(s):  
Institutional Investors ◽  
Asset Markets ◽  
Individual Investors ◽  
Liquidity Effect ◽  
Option Markets ◽  
Foreign Investors ◽  
Information Effect ◽  
Underlying Asset ◽  
New Information ◽  
Derivative Markets

This paper examines the dynamics of returns and order imbalances across the KOSPI 200 cash, futures and option markets. The information effect is more dominant than the liquidity effect in these markets. In addition, returns have more predictability power for the future movements of prices than order imbalances. Information seems to be transmitted more strongly from derivative markets to their underlying asset markets than from the underlying asset markets to their derivative markets. Finally, domestic institutional investors prefer futures, domestic individual investors prefer options, and foreign investors prefer stocks relative to other investor groups when they have new information.

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