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Information acquisition and processing skills of institutions and retail investors around information shocks

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  • Fung, Scott
  • Obaid, Khaled
  • Tsai, Shih-Chuan

Abstract

Using audit trail data from the Taiwan Stock Exchange, this paper compares the trading skill of institutions and individuals around information shocks. We find suggestive evidence that institutions possess information acquisition and processing advantages over individuals. Specifically, net buying done by institutions (individuals) prior to and during jumps positively (negatively) predicts future intraday returns. This predictive relation is strongest among stocks with high limits to arbitrage and a limited information environment. Moreover, domestic institutions generate higher trading profits than foreign institutions. Unlike domestic institutions, the information acquisition and processing advantages of foreign institutions prevail across different sources of price jumps, such as prescheduled events and macroeconomic news. Prescheduled events and news lessen the information disadvantages for individuals.

Suggested Citation

  • Fung, Scott & Obaid, Khaled & Tsai, Shih-Chuan, 2024. "Information acquisition and processing skills of institutions and retail investors around information shocks," Journal of Empirical Finance, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:empfin:v:77:y:2024:i:c:s0927539824000306
    DOI: 10.1016/j.jempfin.2024.101495
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    Keywords

    Information shocks; Price jumps; Trade imbalance; Investor heterogeneity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G19 - Financial Economics - - General Financial Markets - - - Other

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