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The role of institutional investors in market volatility during the subprime mortgage crisis

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  • Tseng-Chan Tseng
  • Hung-Cheng Lai

Abstract

In this study, we obtain intraday data on the Taiwan Stock Exchange Capitalization Weighted Stock Index and apply the range-based estimation method to measure intraday high-low prices, whilst also incorporating the variable of net trading volume of institutional investors into the heterogeneous autoregressive model of realized volatility (RV). Our findings demonstrate that the trading behaviour of institutional investors does have a significant impact on future RV whilst also suggesting that institutional investors play a stabilizing role in the Taiwan stock market. The empirical results also show that institutional investors' net selling caused more volatility in the Taiwan stock market during the subprime mortgage crisis in the United States in 2007, indicating that institutional investors tend to sell more actively than individuals when the market drops sharply. We also demonstrate that the modified model enhances volatility forecasting performance, thereby indicating that the modified model has more accurate predictive ability than the benchmark model.

Suggested Citation

  • Tseng-Chan Tseng & Hung-Cheng Lai, 2014. "The role of institutional investors in market volatility during the subprime mortgage crisis," Applied Financial Economics, Taylor & Francis Journals, vol. 24(23), pages 1529-1536, December.
  • Handle: RePEc:taf:apfiec:v:24:y:2014:i:23:p:1529-1536
    DOI: 10.1080/09603107.2014.925075
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    Cited by:

    1. Walid M.A. Ahmed, 2016. "Cross-border equity flows and market volatility: the case of Qatar Exchange," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 11(3), pages 395-418, July.
    2. Ahmed, Walid M.A., 2017. "The impact of foreign equity flows on market volatility during politically tranquil and turbulent times: The Egyptian experience," Research in International Business and Finance, Elsevier, vol. 40(C), pages 61-77.

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