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Differences in the effects of seller-initiated versus buyer-initiated crowded trades in stock markets

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  • Liyun Zhou

    (South China Agricultural University)

  • Chunpeng Yang

    (South China University of Technology)

Abstract

This paper illustrates the differences in the effects of seller-initiated versus buyer-initiated crowded trades in stock markets. First, a one-period multi-investor model is proposed to describe how crowded trades affect stock prices. Further, we theoretically decompose the crowded trades into buyer-initiated crowded trades and seller-initiated crowded trades and, respectively, analyse their effects on stock prices. An empirical study is conducted to examine the theoretical model, obtaining the following results. First, stock prices increase with crowded trades; second, stock prices are positively related to buyer-initiated crowded trades, but negatively related to seller-initiated crowded trades; and third, the effects of crowded trades, buyer-initiated crowded trades and seller-initiated crowded trades on stock prices are stronger for the younger stocks, lower price earnings ratio stocks, lower earnings per share stocks, and lower fixed asset ratio stocks. Collectively, our results can provide new insights into the roles of crowded trades on stock prices.

Suggested Citation

  • Liyun Zhou & Chunpeng Yang, 2019. "Differences in the effects of seller-initiated versus buyer-initiated crowded trades in stock markets," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(4), pages 859-890, December.
    • Handle: RePEc:spr:jeicoo:v:14:y:2019:i:4:d:10.1007_s11403-019-00264-3
    DOI: 10.1007/s11403-019-00264-3
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    More about this item

    Keywords

    Crowded trades; Buyer-initiated crowded trades; Seller-initiated crowded trades; Stock prices;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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