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.

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.

The Response of Korean Stock Market and Market Participants to the Sub-Prime Mortgage Crisis

2012 ◽  
Vol 20 (2) ◽  
pp. 165-193
Author(s):  
Jay M. Chung
Keyword(s):  
Stock Market ◽  
Information Transmission ◽  
Strong Evidence ◽  
Institutional Investors ◽  
Foreign Investors ◽  
Market Participants ◽  
Mortgage Crisis ◽  
Korean Stock Market ◽  
Using Data ◽  
Informational Advantage

We investigate how Korean stock market and its participants react to the sub-prime mortgage crisis. Using data for the ABX sub-prime index, we find strong evidence of information transmission from ABX to KOSPI and VKOSPI during 2007 sub-prime mortgage crisis period. Responding to the drop of ABX, domestic institutional investors buy, whereas foreign investors sell. Furthermore, we find KOSPI reacts to ABX less than the response implied by KOSPI response to S&P 500 and S&P 500 response to ABX, which are considered as an efficient channel of information transmission. This phenomenon occurs because domestic investors buy stocks as ABX drops, thus keeping KOSPI from responding fully to information on ABX. On the contrary, foreign investors sell stocks as ABX drops, which show that foreign investors play as a channel for sub‐prime mortgage information transmission. This evidence supports the hypothesis of Kho (2011) that foreign investors have an informational advantage over domestic investors on overseas information.

scholarly journals How Do Institutional Investors Interact With Sell-Side Analysts?

2018 ◽  
Vol 34 (3) ◽  
pp. 455-470
Author(s):  
Grace Il Joo Kang ◽  
Yong Keun Yoo ◽  
Seung Min Cha
Keyword(s):  
Stock Market ◽  
Institutional Investors ◽  
Stock Prices ◽  
Earnings Forecasts ◽  
Positive Association ◽  
Individual Investors ◽  
Target Price ◽  
Stock Trading ◽  
Stock Recommendation ◽  
Korean Stock Market

This paper examines how institutional investors interact with sell-side analysts (hereafter, SSAs) in Korean stock market. In particular, we examine the role of institutional investors as a more sophisticated mechanism which incorporates sell-side analysts’ stock recommendation, target price, and earnings forecast more rapidly than individual investors do. Moreover, we examine whether institutional investors differentiate the quality of sell-side analysts’ information. By using a sample of 1,421 firm-year observations in Korean stock market during 2001–2011, we find that the change of institutional investor’s ownership has a significantly positive association with the level of equity value estimates based on SSAs’ earnings forecasts relative to stock prices and their stock recommendation which are considered as SSAs’ indicator of stock market’s mispricing. In addition, we find that only when SSAs provide more accurate earnings forecasts, institutional investors incorporate SSA’s information into their stock trading. Thus, we conclude that institutional investors in Korean stock market contribute to the enhancement of stock market efficiency by incorporating SSAs’ information into their stock trading more rapidly than individual investors. Our findings add to the literature by shedding a light on the unobserved interaction among more sophisticated stock market participants, such as institutional investors and sell-side analysts.

The Impact of Individual Investor‘s Selling Activity on Asymmetric Volatility in the ETF Market of Korea

2012 ◽  
Vol 20 (4) ◽  
pp. 427-449
Author(s):  
Okrye Kong ◽  
Daekeun Park
Keyword(s):  
Stock Market ◽  
Institutional Investors ◽  
Disposition Effect ◽  
Individual Investors ◽  
Return Volatility ◽  
Herding Behavior ◽  
Transaction Data ◽  
Asymmetric Volatility ◽  
The Impact ◽  
Transaction Pattern

This study analysed the effect of individual investors‘ sell-buy imbalance on asymmetric volatility in returns using daily transaction data of the Korean ETF market. Major Finding of the Paper are as follows. First, there exists asymmetric volatility in the sense that the return, volatility, tends to increase when returns fall unexpectedly in the ETF market as well as in stock market. In this case, individual investors' increased selling activity is the main reason behind the increase the volatility while institutional investors' selling activity does not seem to cause asymmetric volatility. Second, when the prices go down, individual investors show herding behavior in transactions because increased selling activity by individual investors amplify volatility. Third, in addition to herding behavior, individual investors' transaction pattern as uninformed investors or as liquidity transactors also causes asymmetric volatility. Fourth, in some large ETFs, disposition effect of individual investors who are reluctant to sell when prices go down plays an important role in generating asymmetric volatility.

scholarly journals Disposition Effect and Return Predictability in the Tunisian Stock Market

2017 ◽  
Vol 4 (1) ◽  
pp. 1
Author(s):  
Cheïma Hmida ◽  
Ramzi Boussaidi
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Stock Prices ◽  
Stock Price ◽  
Return Predictability ◽  
Capital Gains ◽  
Disposition Effect ◽  
Individual Investors ◽  
Long Run ◽  
Return Reversal

The behavioral finance literature has documented that individual investors tend to sell winning stocks more quickly than losing stocks, a phenomenon known as the disposition effect, and that such a behavior has an impact on stock prices. We examined this effect in the Tunisian stock market using the unrealized capital gains/losses of Grinblatt & Han (2005) to measure the disposition effect. We find that the Tunisian investors exhibit a disposition effect in the long-run horizon but not in the short and the intermediate horizons. Moreover, the disposition effect predicts a stock price continuation (momentum) for the whole sample. However this impact varies from an industry to another. It predicts a momentum for “manufacturing” but a return reversal for “financial” and “services”.

A study of prominence for disposition effect: a systematic review

2019 ◽  
Vol 11 (1) ◽  
pp. 2-21 ◽  
Author(s):  
Syed Aliya Zahera ◽  
Rohit Bansal
Keyword(s):  
Mutual Funds ◽  
Behavioral Finance ◽  
Mutual Fund ◽  
Institutional Investors ◽  
Disposition Effect ◽  
Individual Investors ◽  
Content Type ◽  
Experimental Market ◽  
The Individual ◽  
The Impact

Purpose The purpose of this paper is to study the disposition effect that is exhibited by the investors through the review of research articles in the area of behavioral finance. When the investors are hesitant to realize the losses and quick to realize the gains, this phenomenon is known as the disposition effect. This paper explains various theories, which have been evolved over the years that has explained the phenomenon of disposition effect. It includes the behavior of individual investors, institutional investors and mutual fund managers. Design/methodology/approach The authors have used the existing literatures from the various authors, who have studied the disposition effect in either real market or the experimental market. This paper includes literature over a period of 40 years, that is, Dyl, 1977, in the form of tax loss selling, to the most recent paper, Surya et al. (2017). Some authors have used the PGR-PLR ratio for calculating the disposition effect in their study. However, some authors have used t-test, ANNOVA, Correlation coefficient, Standard deviation, Regression, etc., as a tool to find the presence of disposition effect. Findings The effect of disposition can be changed for different types of individual investors, institutional investors and mutual funds. The individual investors are largely prone to the disposition effect and the demographic variables like age, gender, experience, investor sophistication also impact the occurrence of the disposition effect. On the other side, the institutional investors and mutual funds managers may or may not be affected by the disposition effect. Practical implications The skilled understanding of the disposition effect will help the investors, financial institutions and policy-makers to reduce the adverse effect of this bias in the stock market. This paper contributes a detailed explanation of disposition effect and its impacts on the investors. The study of disposition effect has been found to be insufficient in the context of Indian capital market. Social implications The investors and society at large can gains insights about causes and influences of disposition effect which will be helpful to create sound investment decisions. Originality/value This paper has complied the 11 causes for the occurrence of disposition effect that are found by the different authors. The paper also highlights the impact of the disposition effect in the decision-making of various investors.

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.

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