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Institutional Trading and Stock Returns: Evidence from China

Author

Listed:
  • Bart Frijns

    (Department of Finance, Auckland University of Technology, Private Bag 92006, Auckland 1142, New Zealand)

  • Qiang Lai

    (Department of Finance, Auckland University of Technology, Private Bag 92006, Auckland 1142, New Zealand)

  • Alireza Tourani-Rad

    (Department of Finance, Auckland University of Technology, Private Bag 92006, Auckland 1142, New Zealand)

Abstract

Using a unique dataset containing daily institutional ownership information, we examine the relation between daily institutional trading and past, contemporaneous, and future stock returns on the Shanghai Stock Exchange (SSE). We find strong evidence of the price pressure effect induced by institutional trading, causing price impacts of up to 2.12% per day for the most intensively bought stocks. We further find that institutions are informed and momentum traders when buying but not when selling, which may be due to short-selling restrictions in China. Finally, our findings suggest that institutions engage in order splitting and/or herding behavior, as the price pressure effect is observed up to five days before and after the intense trading date.

Suggested Citation

  • Bart Frijns & Qiang Lai & Alireza Tourani-Rad, 2014. "Institutional Trading and Stock Returns: Evidence from China," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(01), pages 1-26.
    • Handle: RePEc:wsi:rpbfmp:v:17:y:2014:i:01:n:s0219091514500039
    DOI: 10.1142/S0219091514500039
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    References listed on IDEAS

    as
    1. Chen, Joseph & Hong, Harrison & Stein, Jeremy C., 2002. "Breadth of ownership and stock returns," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 171-205.
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    Citations

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    Cited by:

    1. Bin Wang & Wonseok Choi & Ibrahim Siraj, 2018. "Local investor attention and post-earnings announcement drift," Review of Quantitative Finance and Accounting, Springer, vol. 51(1), pages 219-252, July.
    2. Eunju Lee, 2016. "Short selling and market mispricing," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 797-833, October.
    3. Wen-Lin Wu & Yin-Feng Gau, 2017. "Home bias in portfolio choices: social learning among partially informed agents," Review of Quantitative Finance and Accounting, Springer, vol. 48(2), pages 527-556, February.
    4. Zheng, Dazhi & Li, Huimin & Zhu, Xiaowei, 2015. "Herding behavior in institutional investors: Evidence from China’s stock market," Journal of Multinational Financial Management, Elsevier, vol. 32, pages 59-76.
    5. Marius Popescu & Zhaojin Xu, 2018. "Leading the herd: evidence from mutual funds’ buy and sell decisions," Review of Quantitative Finance and Accounting, Springer, vol. 50(4), pages 1131-1146, May.

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    More about this item

    Keywords

    Institutional trading; event study; China;
    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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