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.

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 GOVERNANCE THROUGH STOCK TRADING IN BRAZIL: EVIDENCE WITH INSTITUTIONAL INVESTORS

2020 ◽  
Vol 21 (6) ◽  
Author(s):  
LUCAS N. C. VASCONCELOS ◽  
ORLEANS S. MARTINS
Keyword(s):  
Stock Market ◽  
Institutional Investors ◽  
Stock Prices ◽  
Stock Price ◽  
Market Price ◽  
Abnormal Returns ◽  
Specific Information ◽  
Stock Trading ◽  
Price Efficiency ◽  
Stock Market Efficiency

ABSTRACT Purpose: This paper analyses the viability of stock trading as a mechanism to promote corporate governance, addressing its effects on abnormal returns, information, and firm performance. Originality/value: The study indicates that competition among institutional investors is important to raise stock price efficiency. Policies that allow capital inflow, increase in liquidity, and a link between managers’ salaries and stock performance are beneficial to reinforce the stock market efficiency. Design/methodology/approach: Hypotheses testing using panel data regressions of 233 stocks between December 2009 to December 2017 from Thomson Eikon, Economatica and ComDinheiro. Findings: The results indicate that the number of institutional investors is not related to abnormal returns. On the other hand, the number of institutional investors increases the amount of firm-specific information into stock prices, rising stock market price efficiency. This relationship is stronger among the preferred stocks (PN), but this mechanism is still not valid to increase firms’ operational performance. Despite the possible increase in stock price efficiency, the investors cannot adopt such a mechanism to exercise governance if there is no remuneration linked to performance.

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”.

Short Selling and Price Pressures in the Korean Stock Market

2015 ◽  
Vol 23 (2) ◽  
pp. 265-287
Author(s):  
Yeongseop Rhee ◽  
Sang Buhm Hahn
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Short Selling ◽  
Market Liquidity ◽  
Dynamic Panel Model ◽  
Market Sentiment ◽  
Order Imbalance ◽  
Price Decline ◽  
Korean Stock Market

This paper examines short-selling activity focusing on its behavior during non-normal times of occasional excesses in the Korean stock market. Using the methodology explained by Brunnermeier and Pederson (2005) and Shkilko et al. (2009; 2012), we first examine whether short-selling is predatory on those event days of large price reversals. Overall there is little predatory abnormal short-selling in the pre-rebound phase and we can observe active contrarian short-selling in the post-rebound phase. When we compared aggressiveness between short-selling and non-short-selling using order imbalance variables, we found that non-short selling is much more aggressive than short selling in the Korean stock market. From the observation of market liquidity measured by quoted spreads, we could find that market liquidity is somewhat limited during price decline stages while it slightly improves during price reversal phases. Also, using dynamic panel model, we test the influences of those variables on stock price changes and disaggregate the compound effect of short-selling reflected in trading volume itself into differentiated ones not only through pure trading channel but also through other complicated channels such as market sentiment change. Main findings from the regression results are as follows : In the Korean stock market, short sellers seem to behave as a contrarian trader rather than a momentum trader; seller-initiated aggressive trading, whether it is by short-selling or non-short-selling, leads to negative order imbalance and price decline; market liquidity is limited by short-selling and further pressure on price decline is added in the pre-rebound stage; and stock prices are affected not only through pure selling (buying) channel but also through other channels in the Korean stock market.

scholarly journals Investor Sentiment in the Stock Market

2007 ◽  
Vol 21 (2) ◽  
pp. 129-151 ◽  
Author(s):  
Malcolm Baker ◽  
Jeffrey Wurgler
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Stock Prices ◽  
Investor Sentiment ◽  
Cash Flows ◽  
Individual Investors ◽  
Individual Investor ◽  
Top Down ◽  
Limits To Arbitrage ◽  
Future Cash Flows

Investor sentiment, defined broadly, is a belief about future cash flows and investment risks that is not justified by the facts at hand. The question is no longer whether investor sentiment affects stock prices, but how to measure investor sentiment and quantify its effects. One approach is “bottom up,” using biases in individual investor psychology, such as overconfidence, representativeness, and conservatism, to explain how individual investors underreact or overreact to past returns or fundamentals The investor sentiment approach that we develop in this paper is, by contrast, distinctly “top down” and macroeconomic: we take the origin of investor sentiment as exogenous and focus on its empirical effects. We show that it is quite possible to measure investor sentiment and that waves of sentiment have clearly discernible, important, and regular effects on individual firms and on the stock market as a whole. The top-down approach builds on the two broader and more irrefutable assumptions of behavioral finance—sentiment and the limits to arbitrage—to explain which stocks are likely to be most affected by sentiment. In particular, stocks that are difficult to arbitrage or to value are most affected by sentiment.

scholarly journals An Empirical Analysis of the Efficient Market Hypothesis in China’s Stock Market

2021 ◽  
Vol 4 (3) ◽  
pp. 1-5
Author(s):  
Jiaxuan Xu
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Empirical Research ◽  
Empirical Analysis ◽  
Stock Prices ◽  
Efficient Market Hypothesis ◽  
Security Market ◽  
Stock Trading ◽  
Efficient Market ◽  
Basic Framework

The efficient market hypothesis is one of the most important theories in finance. According to this hypothesis, in a stock market with sound laws, good functions, high transparencies, and extensive competitions, all valuable information is timely, accurately, and fully reflected in the trend of stock prices including the current and future values of enterprises. Unless there are market manipulations, it would be impossible for investors to gain more above the average profits in the market by analyzing former prices. Since the efficient market hypothesis has been introduced, it has become an interest in the empirical research of the security market. It is one of the most controversial investment theories and there are many evidences supporting and also opposing this hypothesis. Nevertheless, this hypothesis still holds an important status in the basic framework of mainstream theories in modern financial markets. By analyzing simulated investment transactions in regard to stock trading of three different enterprises, this paper verified that the efficient market hypothesis is partially valid.

scholarly journals Inflation And Stock Market Returns In South Africa

2012 ◽  
Vol 11 (6) ◽  
pp. 677
Author(s):  
Joel Hinaunye Eita
Keyword(s):  
South Africa ◽  
Stock Market ◽  
Stock Prices ◽  
Positive Association ◽  
Market Returns ◽  
Stock Market Returns ◽  
The Relationship

This paper investigated the relationship between stock market returns and inflation in South Africa and revealed that stock market returns and inflation in South Africa are positively related. An increase in inflation results in an increase in stock prices. The results also indicate that when all-share index is used as the measure of stock market returns, the causality is bi-directional. However, when gold index is used as a proxy for stock market returns, the causality is unidirectional, running from inflation to stock market returns. The positive association between these two variables suggests that equities are a hedge against inflation in South Africa.

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