Volatility Effects of Institutional Trading in Foreign Stocks

34 Pages Posted: 4 May 2009 Last revised: 12 Nov 2013

See all articles by Chiraphol N. Chiyachantana

Chiraphol N. Chiyachantana

Singapore Management University; Singapore Management University - Lee Kong Chian School of Business

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics

Christine X. Jiang

Fudan University

Robert Wood

University of Memphis - Fogelman College of Business and Economics

Abstract

This paper examines the impact of institutional trades on volatility in international stocks across 43 countries. There is a temporary volatility spike during the trade execution period, merely reflecting the price impact costs faced by the institutions. Cross sectional regressions suggest that trade imbalances, enforcement of insider trading laws, stock prices, and an emerging market classification are positively associated with temporary volatility increases whereas the presence of market makers and better shareholders' rights dampen such increases. In the long term, institutional trades do not destabilize markets as the levels of volatility after their trades are almost identical to their pre-decision levels.

Keywords: price impact, institutional trading, international stock, foreign investment, volatility

JEL Classification: G14, G15

Suggested Citation

Chiyachantana, Chiraphol N. and Jain, Pankaj K. and Jiang, Christine X. and Wood, Robert A., Volatility Effects of Institutional Trading in Foreign Stocks. Available at SSRN: https://ssrn.com/abstract=993321

Chiraphol N. Chiyachantana (Contact Author)

Singapore Management University ( email )

Lee Kong Chian School of Business
50 Stamford Road
Singapore, 178899
Singapore
65-6828-0776 (Phone)
65-6828-0427 (Fax)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Pankaj K. Jain

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States

Christine X. Jiang

Fudan University ( email )

School of Management
Shanghai, 200433
China
862125011085 (Phone)

Robert A. Wood

University of Memphis - Fogelman College of Business and Economics ( email )

Memphis, TN 38152
United States
901-678-2670 (Phone)
901-678-3006 (Fax)

HOME PAGE: http://www.people.memphis.edu/~rwood/

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