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How do Individual, Institutional, and Foreign Investors Win and Lose in Equity Trades? Evidence from Japan

27 Pages Posted: 9 Jan 2008  

Kee-Hong Bae

York University - Schulich School of Business

Takeshi Yamada

Australian National University (ANU)

Keiichi Ito

Nomura Holdings, Inc. (NHI) - Nomura Securities Co., Ltd.

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Abstract

We investigate the gains and losses from equity trades of individual investors, various institutional investors, and foreign investors in the Tokyo Stock Exchange. We develop a trade-weighted performance measure and examine the impact of trading intervals, price spreads, and market timing on performance. We find that different investor types gain or lose from different sources. For example, we discover that individual investors have poor market timing ability but potentially gain during short-run trading intervals as their average sell price is consistently higher than the average purchase price. In contrast, we find that foreign investors consistently generate gains from trade due to good market timing, although their average sell price is lower than the average purchase price. Also, we find that foreign investors extract significant portion of their gains by trading against Japanese institutional investors when Japanese investors trade before their fiscal-year end.

Suggested Citation

Bae, Kee-Hong and Yamada, Takeshi and Ito, Keiichi, How do Individual, Institutional, and Foreign Investors Win and Lose in Equity Trades? Evidence from Japan. International Review of Finance, Vol. 6, No. 3-4, pp. 129-155, September/December 2006. Available at SSRN: https://ssrn.com/abstract=1081742 or http://dx.doi.org/10.1111/j.1468-2443.2007.00062.x

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Takeshi Yamada (Contact Author)

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Keiichi Ito

Nomura Holdings, Inc. (NHI) - Nomura Securities Co., Ltd. ( email )

Tokyo 100-8130
Japan

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