Tracking Retail and Institutional Investors Activity in China

Abstract

We show that classifying retail and institutional orders based on a commonly adopted order size algorithm in the Chinese stock market is problematic. To improve the accuracy of the algorithm, we explore the order patterns and uncover a higher tendency of retail investors trading in multiples of 500 shares. We modify the order size algorithm by incorporating the feature of share roundedness. Our modified algorithm improves the accuracy of identifying retail and institutional investors. Order imbalances derived from the modified algorithm better predict future stock returns.

Keywords: Order size, round lot, retail investors, institutional investors, Chinese stock market JEL code: G12, G14, G15 Order size, round lot, retail investors, institutional investors, Chinese stock market JEL code: G12, G14, G15

JEL Classification: G12, G14, G15