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Volatility–Volume Relationships Among Types of Traders Considering the Investment Limitation to Foreign Investors

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  • Ching-Mann Huang

    (Department of Business Administration, Hsing-Kuo University of Management, Taiwan, R.O.C.;
    Department of Business Administration, National Cheng Kung University, Taiwan, 89, Yuying St., Tainan, Taiwan 709, R.O.C.)

  • Tsai-Yin Lin

    (Department of Finance, National Chung Cheng University, Taiwan 168, University Rd., Min-Hsiung, Chia-Yi 621, Taiwan, R.O.C.)

  • Chih-Hsien Yu

    (Department of Finance, National Chung Cheng University, Taiwan, 168, University Rd., Min-Hsiung, Chia-Yi 621, Taiwan, R.O.C.)

  • Si-Ying Hoe

    (Department of Business Administration, National Cheng Kung University, Taiwan, No.1, Ta-Hsueh Road, Tainan 701, Taiwan, R.O.C)

Abstract

This paper examines the volatility–volume relationship in Taiwan stock market, using volume data categorized by type of trader. We consider before and after our event period of lifting the investment restrictions for foreign investors. We partition trading volume into expected and unexpected volume and find that the unexpected volume shocks for individual investors are more important than the expected volume shocks in explaining volatility before lifting the investment restrictions for the foreign investors. We find that the positive volatility–volume relationship is driven by the individual investors even during the period of the lifting of investment restrictions for foreign investors. However, with respect to institutional investors, before the removal of investment restrictions for foreign investors, the unexpected volume of trading of the domestic dealers exhibit positive volatility–volume relationship. Further, after the removal of investment restrictions, the unexpected volume of the foreign investors has a positive volatility–volume relationship.

Suggested Citation

  • Ching-Mann Huang & Tsai-Yin Lin & Chih-Hsien Yu & Si-Ying Hoe, 2006. "Volatility–Volume Relationships Among Types of Traders Considering the Investment Limitation to Foreign Investors," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 575-596.
    • Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:04:n:s0219091506000902
    DOI: 10.1142/S0219091506000902
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    References listed on IDEAS

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    1. Chan, Kalok & Menkveld, Albert J. & Yang, Zhishu, 2006. "Are Domestic Investors Better Informed than Foreign Investors? : Evidence from the Perfectly Segmented Market in China," Serie Research Memoranda 0004, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    2. Kenneth A. Froot & Tarun Ramadorai, 2001. "The Information Content of International Portfolio Flows," NBER Working Papers 8472, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Volatility–volume relation; type of trader; foreign investors; investment limitation; JEL Classification: C22; JEL Classification: G23;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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