Investors' Trading Behaviour and Stock Market Volatility During Crisis Periods: A Dual Long-Memory Model for the Korean Stock Exchange

40 Pages Posted: 20 Dec 2019

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Menelaos Karanasos

Brunel University London - Economics and Finance

Stavroula Yfanti

Loughborough University

Aris Kartsaklas

Brunel University London

Date Written: 2019

Abstract

This study examines the impact of investors' buy and sell trades on Korean stock market volatility across two crisis events, the Asian crisis of 1997 and the 2008 global financial crash. We investigate the trading behaviour of domestic vs. foreign and institutional vs. individual investors. Our results suggest that the buy and sell trades have an asymmetric effect on volatility that depends on the type of investor trading and on the phase of the business cycle. Buy orders appear to be more informative than sell orders since they mostly lower volatility in the pre-crisis periods, while sell and post-crisis buy trades affect volatility positively regardless of who trades (institutional or individual investors) and on what information (member, non-member). Most importantly, decomposing total buy and sell trades into trader-type categories reveals that some institutional investors are more informed traders that stabilize the market compared to individuals that always increase volatility. Foreign investors reduce volatility with their purchases and total trading activity in the whole Asian crisis sample, but only in the pre-crisis period before the recent global financial turmoil.

Keywords: financial crisis, foreign investors, individual investors, institutional investors, long memory, range-based volatility, structural change, trading volume

JEL Classification: G010, G120, G150, G230

Suggested Citation

Caporale, Guglielmo Maria and Karanasos, Menelaos and Yfanti, Stavroula and Kartsaklas, Aris, Investors' Trading Behaviour and Stock Market Volatility During Crisis Periods: A Dual Long-Memory Model for the Korean Stock Exchange (2019). CESifo Working Paper No. 7984. Available at SSRN: https://ssrn.com/abstract=3507255

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Marie Jahoda Building
Uxbridge, Middlesex UB8 3PH
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+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Menelaos Karanasos

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

Stavroula Yfanti

Loughborough University ( email )

Ashby Road
Nottingham NG1 4BU
Great Britain

Aris Kartsaklas

Brunel University London ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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