Daily Institutional Trades and Stock Price Volatility in a Retail Investor Dominated Emerging Market

40 Pages Posted: 16 Jun 2010

See all articles by Wei Li

Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance

Steven Shuye Wang

School of Business, Renmin University of China

Date Written: December 9, 2009

Abstract

We examine the short-run dynamic relation between daily institutional trading and stock price volatility in a retail investor-dominated emerging market. We find a significantly negative relation between volatility and institutional net trading that is mainly due to the unexpected institutional trading. The price volatility-institutional trade relation differs for institutional buys and institutional sells, and for small and large stocks. Institutional investors herd-trade in large stocks, but do not systematically engage in positive-feedback trading. We argue that the net impact of informational and noninformational institutional trades determines the relation between volatility and institutional trading, and that the relation is negative when informational trading by institutions prevails.

Keywords: volatility, institutional trade, information asymmetry, and herding

JEL Classification: G1, G12, G23

Suggested Citation

Li, Tina Wei and Wang, Steven Shuye, Daily Institutional Trades and Stock Price Volatility in a Retail Investor Dominated Emerging Market (December 9, 2009). Available at SSRN: https://ssrn.com/abstract=1625622 or http://dx.doi.org/10.2139/ssrn.1625622

Tina Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Steven Shuye Wang (Contact Author)

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

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