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Modeling Trading Behavior in the Japanese Stock Market During QE Tapering and Post-QE Exit

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  • Wee-Yeap Lau

    (University of Malaya)

  • Tien-Ming Yip

    (University of Malaya)

Abstract

This study investigates the trading dynamics between institutional, foreign and retail investors during QE and post-QE exit in the Japanese stock market. A theoretical framework is developed to classify all transactions into trading, short-selling or information flow. Using weekly data from 2014 to 2015, our results show: Firstly, during QE tapering, there is short-selling by foreign retail investors. There is also information flow from Foreign Retail Sales to Local Institutional Sales as well as Foreign Retail Purchases to Local Retail Purchases. Net buyers are local and foreign institutional investors; Secondly, in post-QE exit, there is short-selling by foreign institutional investors. Moreover, Foreign Institutional Purchases is found to precede Local Retail Purchases. Net sellers are local and foreign retail investors. Hence, it can be concluded that foreign investors are dominant player during QE tapering and post-QE period. As a policy suggestion, both local and foreign investors should be provided with more incentive to trade in the local bourse. The regulator should also ensure timely disclosure of material public information by listed firms to ensure a level playing field for all market participants.

Suggested Citation

  • Wee-Yeap Lau & Tien-Ming Yip, 2019. "Modeling Trading Behavior in the Japanese Stock Market During QE Tapering and Post-QE Exit," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(4), pages 409-427, December.
    • Handle: RePEc:kap:apfinm:v:26:y:2019:i:4:d:10.1007_s10690-019-09272-6
    DOI: 10.1007/s10690-019-09272-6
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    References listed on IDEAS

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    1. Hyuk Choe & Bong-Chan Kho & René M. Stulz, 2005. "Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea," The Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 795-829.
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    5. Hyuk Choe & Bong-Chan Kho & Rene M. Stulz, 2001. "Do Domestic Investors Have More Valuable Information About Individual Stocks Than Foreign Investors?," NBER Working Papers 8073, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Quantitative easing; Foreign investors; Short-selling; Market microstructure; Japan;
    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
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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