The Effect of Investor Category Trading Imbalances on Stock Returns

35 Pages Posted: 23 Aug 2007

See all articles by David B. Colwell

David B. Colwell

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Julia Henker

Bond University

Terry S. Walter

University of Sydney; University of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN)

Date Written: May 2007

Abstract

Trading is the mechanism of the economist's 'invisible hand;' the means by which price discovery occurs. We use daily shareholdings data from the Australian equities clearinghouse to investigate the impact of the trading imbalances of investor categories on stock returns. Our evidence does not contradict the behavioural finance assumption that the trading of individual investors contributes to price discovery. Furthermore, we find that, while the trading of all investor categories Granger-causes returns, returns Granger-cause trading only for the individual investor category. That is, in the short term of up to one month, only individual investors engage in feedback trading.

Keywords: trading imbalance, retail investor, feedback trading

JEL Classification: G14, G19

Suggested Citation

Colwell, David B. and Henker, Julia and Walter, Terry Stirling, The Effect of Investor Category Trading Imbalances on Stock Returns (May 2007). Available at SSRN: https://ssrn.com/abstract=1009025 or http://dx.doi.org/10.2139/ssrn.1009025

David B. Colwell

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+61 (2) 9385 5851 (Phone)
+61 (2) 9385 6347 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Julia Henker (Contact Author)

Bond University ( email )

Gold Coast, QLD 4229
Australia

Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

University of Technology, Sydney - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
+61 2 9514 3860 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=5373

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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