Performance and informed trading. Comparing foreigners, institutions and individuals in an emerging stock market

Agudelo, Diego A.; Byder, James; Yepes-Henao, Paula A.

doi:10.1016/j.jimonfin.2018.09.001

Cited by 21 publications

(16 citation statements)

References 51 publications

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“…In the theoretical models of Kyle (1985) and Glosten and Milgrom (1985), informed investors drive prices close to their fundamental values, taking advantage of the mispricing created by noise traders Therefore, informed traders can be expected to mitigate transitory volatility. Previous studies have found that the performance of institutional investors is superior to that of retail investors in Taiwan (Lee et al 2004) and Colombia (Agudelo et al, 2019), and both studies link this performance to superior information. Therefore, we expect that institutional trading has a lower effect on volatility than individuals' trading.…”

Section: H2mentioning

confidence: 91%

“…The effect of individuals on liquidity is several times larger than the effect of institutions, both in the bid-ask spread and in the depth. This increased liquidity associated with retail trading can be explained by retail traders acting as the main liquidity providers, as reported by Agudelo et al (2019) in Colombia, by Lee et al (1999) in Taiwan and by Barber and Odean (2001) in the US. Chordia, Roll, & Subrahmanyam (2001) also report that depth rises when trading activity comes from uninformed investors.…”

Section: Differential Effects On Stock Market Volatility With Intradamentioning

confidence: 96%

“…Since noise traders trade randomly, their increasing trading should induce volatility (De Long et al, 1989). Evidence in support of the informational disadvantage of retail investors has been presented in Colombia by Agudelo et al (2019) and in Taiwan by Lee, Liu, Roll, and Subrahmanyam (2004) and Barber et al (2008) 15 . Day trading can be seen as an extreme example of uninformed trading by individuals, attributed to overconfidence (Barber and Odean, 2004).…”

Section: Hypothesesmentioning

confidence: 98%

“…In turn, individual traders have also been identified as important liquidity providers in the US (Kaniel et al, 2008;Barber and Odean, 2001), France (Barrot et al, 2016), Australia (Tian et al, 2015), Taiwan (Lee et al, 1999;Lee et al, 2004) and Colombia (Agudelo et al, 2019). This liquidity provision might modify the volatility effect of individual noise trading.…”

Section: Hypothesesmentioning

confidence: 99%

“…Colombia (Agudelo et al, 2019) report that foreign investors are more aggressive investors, demand liquidity through active orders, and trade with larger execution costs.…”

Section: H3mentioning

confidence: 99%

See 4 more Smart Citations

Muddying the Waters: Who Induces Volatility in an Emerging Market?

2018

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Do all investor types contribute equally to volatility formation? Although stock volatility should ideally originate only from fundamental innovations, it is embedded into prices through the trading process. We compare the relative contributions of trading by local institutions, local individuals and foreign institutions to the volatility of individual stocks, using a proprietary dataset and a battery of robust measures. Overall, neither local nor foreign institutions are the major drivers of volatility, not even during times of financial stress. Individuals consistently appear to induce more of the volatility and liquidity, behaving as the archetypical noise traders but also as liquidity providers.

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Section: H2mentioning

confidence: 91%

Section: Differential Effects On Stock Market Volatility With Intradamentioning

confidence: 96%

Section: Hypothesesmentioning

confidence: 98%

Section: Hypothesesmentioning

confidence: 99%

“…Colombia (Agudelo et al, 2019) report that foreign investors are more aggressive investors, demand liquidity through active orders, and trade with larger execution costs.…”

Section: H3mentioning

confidence: 99%

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Muddying the Waters: Who Induces Volatility in an Emerging Market?

2018

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Smart money or chasing stars: Evidence from northbound trading in China

Liao

Tang

2022

Int. J Fin Econ

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To explore what kinds of roles foreign investors take in a gradually opening financial market, we propose the abnormal holding value ratio (AHVR) of northbound investors among stocks through China's Stock Connect Mechanism. We find that AHVR positively predicts the expected stock returns and significantly relates to firms' quality‐related fundamental information, especially profitability. Foreign investors learn the firm fundamentals before they invest in the Chinese market, which is different from the trading behaviour of domestic individual investors. The AHVR premium is larger among firms with higher attention of analysts who focus on effective information and with lower attention of individual investors who have behavioural bias. In all, the northbound inflows are smart money, which will increase the efficiency of the Chinese market instead of simply chasing stars that only grab investors' attention.

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Sustainable Investment and Transparency Recommendations in Segmented Markets: An Application to Islamic Investment Accounts

Badreldin

Nietert

2021

Gulf Studies

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Performance and informed trading. Comparing foreigners, institutions and individuals in an emerging stock market

Cited by 21 publications

References 51 publications

Muddying the Waters: Who Induces Volatility in an Emerging Market?

Muddying the Waters: Who Induces Volatility in an Emerging Market?

Smart money or chasing stars: Evidence from northbound trading in China

Sustainable Investment and Transparency Recommendations in Segmented Markets: An Application to Islamic Investment Accounts

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