Effect of Investor Category Trading Imbalances on Stock Returns

28 Pages Posted: 2 Dec 2008

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 Walter

Macquarie University

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 behavioral 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 1 month, only individual investors engage in feedback trading.

Suggested Citation

Colwell, David B. and Henker, Julia and Walter, Terry, Effect of Investor Category Trading Imbalances on Stock Returns. International Review of Finance, Vol. 8, Nos. 3-4, pp. 179-206, September/December 2008. Available at SSRN: https://ssrn.com/abstract=1308303 or http://dx.doi.org/10.1111/j.1468-2443.2008.00081.x

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

Bond University ( email )

Gold Coast, QLD 4229
Australia

Terry Walter

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

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