Trading Behavior Of Investors Research Articles

Wealthy individual investors and stock markets' tail risk.

This paper employs a unique data set to analyze the trading behavior of wealthy individual investors across Mainland China and their impact on Chinese stock markets' tail risk. Results show that the wealthy individual investors' trading behavior can explain Chinese stock markets' tail risk, and the daily investment portfolios based on the network density of wealthy individual investors have significant excess returns. This paper also investigates the determinants of wealthy individual investors' trading behavior with the social network method and the spatial econometric model, and reveals that wealthy individuals benefit from the spillover effect of their trading behavior through the investor networks. The results of this paper not only reveal micro evidence for the formation mechanism of asset prices, but also provide insight into the behavior of wealthy individual investors.

Heterogeneous trading behaviors of individual investors: A deep clustering approach

While individual investors may have more diverse preferences and trading behavior than institutional investors due to their lack of professional education, many studies tend to lump individual investors together or classify them by socio-demographic characteristics. We conducted an empirical study using account-level trading data for over 300,000 investors in the Korean stock market from 2016 to 2020 to analyze the heterogeneity of individual investors. Our findings reveal notable disparities in profit distributions among the clusters formed based on investors' trading behavior. Therefore, this study emphasizes the importance of exploring the heterogeneity of individual investors to understand their behavior better.

Heterogeneity of foreign investors and Knightian uncertainty: Evidence from the Chinese capital market

Foreign investors are playing an increasingly important role in China's capital market, and the impact of northbound funds on Knightian uncertainty has attracted much academic attention. Based on the characteristics of northbound funds' trading behavior and investors' shareholding stability, this study divides them into long-term investors and short-term opportunists. It also examines the effect of long- and short-term foreign investors on individual stock Knightian uncertainty. The study finds that higher stability of northbound fund shareholding lowers the Knightian uncertainty of individual stocks, and long-term foreign institutional investors contribute to market stability. Furthermore, long-term investments in northbound funds can reduce Knightian uncertainty by improving the information environment, influencing the trading behavior of institutional investors, boosting investor confidence, and helping investors form consistent expectations. In conclusion, short-term foreign investors aggravate market volatility, whereas long-term foreign institutional investors help stabilize the market.

Does corporate digital transformation affect investor trading behaviour? – A perspective based on investor divergence

ABSTRACT This paper takes A-share listed companies during 2010–2021 as the research object, and finds that the digital transformation (DT) of enterprises affects investors’ trading behaviours; more specifically, the digital transformation of enterprises increases investor divergence. This paper also finds that external governance factors mitigate the impact of digital transformation on investor divergence; specifically, analyst tracking mitigates the impact of digital transformation on investor divergence by alleviating information asymmetry. As more professional investors, institutional investors have stronger information mining and analysis capabilities, so the impact of digital transformation on investor divergence could also be mitigated with the increase in the proportion of institutional investors. The intermediary mechanism test suggests that corporate digital transformation triggers investor divergence by increasing surplus volatility. Further research finds that, firstly, different approaches to digital transformation have different impacts, with digital transformation through self-developed technology being more likely to trigger investor divergence. Secondly, different firm natures have different impacts, with the digital transformation of non-high-tech firms having relatively greater impacts on investor divergence. Finally, the digital transformation of non-state-owned enterprises has greater impact on investor analysis.

Foreign trade and China’s yield curve during the COVID-19 pandemic: An analysis based on an extended arbitrage-free Nelson–Seigel model

We propose a general extension of the arbitrage-free Nelson–Seigel (AFNS) model by incorporating exogenous factors into the unspanned AFNS model. Regarding the number of people newly diagnosed with COVID-19 as an exogenous shock and net foreign purchases of treasury bonds of different maturities as unspanned factors, we study the impacts of the COVID-19 pandemic and the trading behavior of foreign investors on the yield curve in China. Our empirical results show that the COVID-19 pandemic significantly increases net foreign purchases of short-to-medium-term treasury bonds while significantly reducing the long-term treasury yield. Net foreign purchases of treasury bonds of different maturities cause large shifts with different shapes in the yield curve and have different effects on the excess returns of bonds of different maturities. This paper provides an important reference for risk management, investment decision-making and risk assessment of China’s financial opening policy for its treasury bond market.

Exploring the Influence of Post-Earnings Announcement Drift and Investor Sentiments on Investor Trading Behavior: A Qualitative Analysis

"Post-Earnings-Announcement Drift" is a market phenomenon, which refers to investors’ tendency to overreact to the earnings announcements in conducting their investment decisions. However, this effect shows up gradually over the whole period that stock of the company is being sold out following a bullet earnings surprise. Form radically different treatments from the efficient market hypothesis (EMH), where prices of stocks will be able to quickly and fully adjust to any new coming information, it takes time for the drift to reveal itself. This happens as a slow and eventual process. This research study investigates the impact of investor sentiments and post earnings announcements drift on investor trading behavior within the Pakistan stock market context. Twelve participants that comprises of institutional and individual investors, were selected using the convenience sampling methods. Semi-structured interviews were conducted to explore the fluctuations in stock prices, investment strategies, and the market conditions. NVivo software was employed to analyze the interview transcripts, revealing themes related to the fundamental analysis, dividend importance, decision-making strategies, sources of information, investor sentiments, earnings announcements, stock pricing, information leakage, and the market anomalies. The findings highlight the significance of both the rational analysis and emotional responses in investment decisions, the importance of timely earnings disclosures, and the presence of market anomalies and the information leakage.

Is macroeconomic tail risk contagious to stock idiosyncratic risk?

We explore whether macroeconomic tail risk (MTR) is contagious at the individual stock level. We find that macroeconomic tail risk exacerbates stock idiosyncratic volatility. An increase in macroeconomic tail risk by one standard deviation is associated with an average increase in idiosyncratic volatility by 5.10%. Further, divergence of opinion intensifies the macro to stock idiosyncratic risk contagion. Results show that the positive impact of macroeconomic tail risk on idiosyncratic volatility is only observed in assets with positive MTR beta, indicating that risk-averse hedging trading behavior of investors during macroeconomic downturns is the potential reason for the macro-individual risk contagion.

Mobile device use and the ranking effect on trading behavior: Evidence from natural experiments

This paper investigates how the trading behavior of investors using mobile devices differs from that of investors using PCs in the context of limited attention. We hypothesize that mobile device-based trading is associated with a stronger “ranking effect” that investors disproportionally trade top-ranked stocks. By exploiting the exogeneity of the return-based ranking of price limit events, we examine the ranking effect on retail investors' buying behavior and find supportive evidence that (1) based on the absolute returns of price limit events, top-ranked stocks are more heavily bought than the lower ranks by investors using mobile devices, while there is no significant ranking effect for investors using PCs; and (2) the ranking effect is enhanced with the increase of the number of contemporaneous price limit events.

Trading behavior by foreign and domestic investors

Purpose- Momentum, a well-known anomaly in financial markets, has garnered considerable attention from both academicians and market participants due to its implications for the market efficiency hypothesis and investment plans of investors. While momentum trading can yield excess returns, it is not a possible strategy for all investors because if one segment of investors employs a momentum trading strategy to profit from their trades, it requires another type of investor to take the opposite position to clear the market. Methodology- I investigate the momentum trading behavior of investors in different segments of Borsa İstanbul. Specifically, I focus on the momentum trading behavior among local and foreign investors and private and institutional investors. Findings- The results show that foreign investors’ stock holdings are positively associated with past returns inferring momentum trading while domestic investors are contrarians. Further analysis of domestic investors’ investing strategies reveals that the contrarian trading of domestic investors is mainly driven by individual investors. Conclusion- The results show that foreign investors’ stock holdings are positively associated with past returns inferring momentum trading while domestic investors are contrarians. Also, the contrarian trading of domestic investors is mainly driven by indvidual investors. Keywords: Momentum trading, investor behavior, foreign investor, domestic investor, panel data JEL Codes: G40, G11, G14

The momentum ambiguity and investor trading behavior

This paper investigates the impact of momentum ambiguity on investor trading behavior. Specifically, our findings suggest that in the presence of momentum (reversal) effects in asset returns, investors’ demand for the risky asset comprises myopic, hedging, and speculative components. Due to the opposite signs of hedging and speculative demands, the relationship between total demand and momentum effects may display a non-monotonic trend. The introduction of momentum uncertainty leads investors to adopt a more conservative approach, and in some cases, abstain from trading the risky asset altogether. Additionally, we observe heterogeneity in the impact of momentum and reversal uncertainty levels on investor demand.

Do foreign investors trading behaviors affect mutual fund performances or vice versa?

This paper is to examine the trading behavior, buy and sell, by foreign investors: institutional and retail investors, on the performance of the mutual funds (information contribution effect). The impact of mutual funds performances on the trading behavior (feedback effect) of foreign investors are also to be investigated. Since there have been increasing demand for much more secured and cheaper investment, such as mutual funds, the study on these funds is crucial. Granger causality, Spearman’s rho and Vector Autoregressive model analyses are applied on daily data of foreign institutional and retail buy, sell and net flows volume and Malaysia’s average mutual fund returns from 1st October 2009 to 31st December 2019. The findings reveal that only foreign retail investors have cause-effect relationships with the performance of the mutual funds. Thus, mutual funds companies, especially in the emerging countries, should be given more attention to foreign retail investors in attracting them to remain invest in our mutual funds for long-term. Having better anticipated returns would also discourage those foreign retail investors from selling the funds, indeed, would motivate them to contribute more into the funds. The findings would be able to guide the Mutual Fund companies in managing and promoting foreign investors and enhancing the mutual funds performances.

Investor attention during soccer World Cups

PurposeThis study aims to examine investor attention by exploring the trading behavior of investors in US-based exchange traded funds (ETFs) of countries active in the Federation Internationale de Football Association (FIFA) World Cups.Design/methodology/approachThe present study employs event study methodology to measure abnormal returns and excess trading volume of country-specific ETFs during six FIFA World Cups. The sample of ETFs includes 19 participating countries.FindingsConsistent with investor behavior that might be explained by attention effect, the study finds that country-specific ETFs from participating countries do indeed behave differently during FIFA World Cups events. The authors find significant evidence of abnormal trading volume and, albeit weaker, abnormal returns during cups.Originality/valueThis study contributes to the literature on investor behavior, linking investor attention with salient sports events.

A search of investors' trading practices in the Bangladesh capital market

PurposeThis research mainly intends to ascertain the stimulus of investor investment tendencies on the amount of capital investment in the share market.Design/methodology/approachUtilizing a sample of 477 individual investors who actively trade on the Bangladesh capital market, this empirical study was conducted. The objective of this examination is to ascertain the investment trading behavior of retail investors in the Bangladesh capital market using multiple regression, hypothesis testing and correlation analysis.FindingsThe coefficients of market categories, preferred share price ranges and investment source reveal negative predictor correlations; all predictors are statistically significant, with the exception of investment source. Positive predictive correlations exist between investor category, financial literacy degree, investment duration, emotional tolerance level, risk consideration, investment monitoring activities, internal sentiment and correct investment selection. Except for risk consideration and investment monitoring activities, all components have statistically significant predictions. The quantity of capital invested in the stock market is heavily influenced by the investment duration, preferred share price ranges, investor type, emotional toleration level and decision-making accuracy level.Research limitations/implicationsThis investigation was conducted exclusively with Bangladeshi individual stockholders. Therefore, the existing study can be extended to institutional investors and conceivably to other divisions. It is possible to conduct this similar study internationally. And the query can enlarge with more sample size and use a more sophisticated econometric model. Despite that the outcomes of this study help the regulatory authorities to arrange more informative seminars and consciousness programs.Practical implicationsThe conclusions have practical implications since they empower investors to modify their portfolios based on elements including share price ranges, investment horizons and emotional stability. To improve chances of success and reach financial objectives, they stress the significance of bettering financial understanding, active monitoring and risk analysis. Results can also be enhanced by distributing ownership over a number of market sectors and price points. The results highlight the value of patience and giving potential returns enough time.Originality/valueThis study on the trading behavior of investors in Bangladesh is unique and based on field study, and the findings of this study will deliver information to the stakeholders of the capital market regarding the investors’ trading behavior belonging to different categories, financial literacy level, investment duration, emotional tolerance level and internal feeling.

A Test of Positive Feedback Trading among Foreign Portfolio Investors in Nigeria

It has been established in the literature that the trading behavior of international investors may increase market vulnerability, especially for emerging markets. Consequently, this study examines whether positive feedback trading exists in the Nigerian stock market. Both descriptive and inferential analyses are carried out on monthly data covering the period 2013 to 2020. Specifically, the ARDL bounds testing approach is employed. Findings indicate that positive feedback trading exists in the market, as stock returns have positive and significant influence on foreign portfolio inflows. The results further show that this trading pattern becomes more prominent with rising economic growth. The findings again reveal that the exchange rate and the interest rate explain the foreign portfolio inflows in the Nigerian market. The study’s outcomes lend support for the pull theory in explaining the foreign portfolio inflow. However, no evidence is found in support of the push theory, as an explanation for the foreign portfolio inflow as the “OPEC basket crude oil price” is insignificant. It is thereby recommended that regulators should adopt measures that will help foreign investors to be better informed about the Nigerian market, in order to reduce their positive feedback trading behavior. Moreso, there is a need for the government to put in place policies targeted toward enhancing the growth of the stock market and the economy. In this way, the negative impact of such trading behavior will be minimal, as short-term trading by foreign investors will be reduced and the foreign portfolio inflows will be sustainable.

Herding in the Australian stock market during the era of COVID-19: the roles of liquidity, government interventions and mood contagion

PurposeThis study explores the economic impact of the COVID-19 crisis on herding behaviour in the Australian equity market by considering liquidity, government interventions and sentiment contagion.Design/methodology/approachThis study utilizes a daily dataset of the top 500 stocks in the Australian market from January 2009 to December 2021. Both predictive regression and portfolio approaches are employed to consider the impact of COVID-19 on herding intention.FindingsThis study confirms that herding propensity is more pronounced at the beginning of the crisis and becomes less significant towards later phases when reverse herding is more visible. Investors herd more toward sectors with less available information on financial support from the government during the financial meltdown. Conditioning the stock liquidity, herding is only detectable during highly liquid periods and high-liquid stocks, which is more observable during the initial phases of the crisis. Further, the mood contagion from the United States (US) market to Australian market and asymmetric herding intention are evident during the pandemic.Originality/valueThis is the first study to shed further light on the impact of a health crisis on the trading behaviour of Australian investors, which is driven by liquidity, public information and sentiment. Notwithstanding the theoretical contributions to the prior literature, several practical implications are proposed for businesses, policymakers and investors during uncertainty periods.

Are institutional investors colluding with manipulators?

AbstractThis paper examines the trading behavior of institutional investors in Taiwan before, during, and after a manipulation event and determines whether institutional investors benefit from their trading behavior during the period from the year 2000 to 2020. We find that stocks with a low turnover and small market capitalization are the main targets of price manipulators. In addition, the stock price of manipulated firms increases from the start date of the manipulation event, peaks at the end of the event, then falls after the event. Foreign institutions collude with manipulators to exaggerate stock prices for self‐benefit. In contrast, securities dealers counter the trading behavior of manipulators and act as market stabilizers, causing them to suffer losses. Moreover, foreign institutions earn higher returns on stocks of manipulated firms with a low turnover during and soon after manipulation; however, they earn a higher return on stocks of manipulated firms with a high turnover in the long run after manipulation.

Examining Financial Attitudes of Retail Investors and its impact on Investing Activities: A Case of Pakistan Stock Exchange (PSX)

The fundamental objective of the research is to analyze the investing behaviors of retail investors. The behavior of retail investors in Pakistan, one of the emerging countries after COVID-19, is used as a case study to analyze the factors that determine investing behavior. In academic research, the association between financial attitude and behavior is well-established. Yet, assessments of financial attitude and behavior continue to vary greatly and are often comprised of a series of questions rather than statements. Individual investors on the PSX were considered a population for the purpose of this study. The researcher collected data from respondents using a non-probability sample (convenience sample) using a questionnaire survey method. The researcher analyzed the data by using SPSS. According to the results of the study, there is a statistically significant relationship between the financial attitude constructs optimism, financial security and deliberative thinking on the trading behavior of investors. The conclusions of this research are significant for academics and policymakers in developing countries.

Price bands and their effects on equity markets: Evidence from a natural experiment

We exploit a unique experiment, where the intraday price moves of Indian IPO listings are restricted within a narrow band, to examine the consequences of price bands for stock prices, investor trading behavior, and stock market liquidity. Based on difference-in-differences estimations, we find that price bands lead to a significant reduction in the price variability of IPO stocks. The decrease in variability is accompanied by increases in post-IPO selling by individual investors, the price impact of trades, and IPO expected returns. Bid-ask spreads remain similar. The findings provide new evidence on the effects of intraday price bands on equity markets.

ESG controversies and investor trading behavior in the Korean market

This study examines how investor trading behavior changes following environmental, social, and governance (ESG) controversies by analyzing textual news data. We use deep-learning-based natural language processing to classify news articles into specific categories of controversy. ESG controversies generally increase investors’ trading activities regardless of their type, while their reactions differ by ESG pillar. Interestingly, domestic institutions tend to sell stocks with controversies.

Stock Return Comovement around the ESG Index Revision in Korea

This article examines the impact of additions or deletions to the ESG index on stock return comovement in the Korean stock market over a 10-year period from 2010 to 2019, using eight ESG indices. Our results show that firms added to the ESG index experience an increased beta, both in the short- and long-term, while deleted stocks from the ESG index show significant decreases in beta. The return comovement following ESG index changes identifies not only the initial ESG index but also the new ESG index launched in 2015. However, comovement to the ESG index inclusion is more pronounced with the initial ESG index. Moreover, we find that comovement largely accounts for the trading behavior of individual investors and is partially related to foreign investors’ trading. Our findings are consistent with previous evidence on comovement with changes in major market index constituents and suggest that ESG index revision by considering non-financial factors also induces stock return comovement. These results can be explained by the investor sentiment-based views.