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The dynamics of individual and institutional trading on the Shanghai Stock Exchange

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  • Lee, Bong Soo
  • Li, Wei
  • Wang, Steven Shuye

Abstract

We investigate the daily dynamic relation between returns and institutional and individual trades in the emerging Chinese stock market. Consistent with the hypotheses of trend-chasing and attention-grabbing trading, we find that the response of individual trading to return shocks is much stronger than that of institutional trading, and individuals are net buyers following return shocks. Second, we find that past individual buys and sells have predictive power, whereas past institutional buys and sells have predictive power for market returns in longer horizons. However, both institutional and individual trading activities are more strongly related to past trades than past returns, and individual trading is also influenced by institutional trading. Moreover, we find that institutional trading in the largest quintile leads the trading in the smallest quintile, but no such lead-lag relation is found for individual trades. Finally, we find that the average cumulative abnormal trading volume of individuals is much larger than that of institutions around the firms' earnings announcement, suggesting that less-informed individual investors are more heavily influenced by firm-specific information disclosures and attention-grabbing events.

Suggested Citation

  • Lee, Bong Soo & Li, Wei & Wang, Steven Shuye, 2010. "The dynamics of individual and institutional trading on the Shanghai Stock Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 18(1), pages 116-137, January.
    • Handle: RePEc:eee:pacfin:v:18:y:2010:i:1:p:116-137
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    8. Diego Agudelo & Diego Amaya & Juliana Hincapié & Julián Múnera, 2017. "Attention-based vs information-based trading around announcements. Evidence from an emerging market," Documentos de Trabajo de Valor Público 16359, Universidad EAFIT.
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    17. Lee, Sangwook & Kim, Min Jae & Lee, Sun Young & Kim, Soo Yong & Ban, Joon Hwa, 2013. "The effect of the subprime crisis on the credit risk in global scale," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(9), pages 2060-2071.
    18. Ralph Yang-Cheng Lu & Hsiu-Chuan Lee & Peter Chiu, 2014. "Institutional Investor Sentiment and Market Returns: Evidence from the Taiwan Futures Market," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 140-167, December.
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