Investor Types and Stock Return Volatility

Abstract

This paper examines the impacts of domestic individual investors, financial investors and foreign investors on stock return volatility, at the individual security level. We find that foreign investors exacerbate stock return volatility, while domestic individual investors and financial investors dampen return volatility. The potential explanations are that foreign investors are momentum traders, trade the most and have the shortest investment horizon; individual investors are contrarian investors, trade the least and have the longest investment horizon; and financial investors fall somewhere in-between.

Keywords: Stock Return Volatility, Holding Ownership, Individual Investors, Foreign Investors, Trading Style