The Dynamics of Individual and Institutional Trading on the Shanghai Stock Exchange

48 Pages Posted: 15 Mar 2007

See all articles by Bong-Soo Lee

Bong-Soo Lee

Korea Advanced Institute of Science and Technology (KAIST)

Wei Li

Hong Kong Polytechnic University - School of Accounting and Finance

Steven Shuye Wang

School of Business, Renmin University of China

Date Written: February 26, 2007

Abstract

We investigate the daily relation between returns and the trading of Shanghai Stock Exchange 180 stocks by institutional and individual investors. We find that there is a positive relation between returns and the trading of institutions and individuals. Both individuals and institutions trade, buy, and sell more if past returns are high, although overall such activity is more strongly related to lagged trades than lagged returns. On the other hand, the institutional imbalance is negatively related to the lagged market returns, which implies that institutions tend to be contrarian traders. Second, we find that past individual trading has predictive power whereas past institutional trading only has a long-run predictive power for market returns. Institutional trading also Granger-causes the returns of the two large stock quintiles, and individual trading Granger-causes the returns of several of the small and medium-sized portfolios. Further analysis reveals that, trading of the individual investors is influenced more by trading of institutional investors, while trading of the institutional investors are mainly influenced by shocks from its past trading and shocks from market returns. Finally, we find that institutional trading in the largest quintile leads institutional trading in the smallest quintile, but no such lead-lag relation is found for individual trades. These results suggest that although individuals dominate trading within most of the quintiles, institutional trading, and especially the trading of large stocks, conveys more information and increases the speed of price adjustments.

Keywords: Stock returns, Institutional and individual trading, Emerging market

Suggested Citation

Lee, Bong-Soo and Li, Tina Wei and Wang, Steven Shuye, The Dynamics of Individual and Institutional Trading on the Shanghai Stock Exchange (February 26, 2007). Available at SSRN: https://ssrn.com/abstract=971419 or http://dx.doi.org/10.2139/ssrn.971419

Bong-Soo Lee

Korea Advanced Institute of Science and Technology (KAIST)

373-1 Kusong-dong
Yuson-gu
Taejon 305-701, 130-722
Korea, Republic of (South Korea)

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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