Conference Presentations and the Disclosure Milieu

Conference presentations differ from other voluntary disclosures in that the audience for the disclosure is co‐located with managers in a well‐defined physical and social setting, or “disclosure milieu.” The milieu affects the degree to which conference participants can update their prior beliefs about the firm with information signals obtained through interactions with management and other informed participants. While the average abnormal stock return and volume reactions to presentations are positive, there is a great deal of cross‐sectional variation as indicated by negative median reactions. We find that conference characteristics that determine the nature of the audience and its interactions, such as sponsor, location, size, and industry‐focus, are significantly associated with the market reaction, consistent with the disclosure milieu explaining the cross‐sectional variation in the information content of the presentation. We also find that conference characteristics explain changes in subsequent analyst and institutional investor following, consistent with the disclosure milieu creating differences in access to management by potential new investors and analysts.     

US and Domestic Market Gains and Asian Investors’ Overconfident Trading Behavior

We find that subsequent to both US and domestic market gains, both Asian individual and institutional investors increase their trading and that this effect is more pronounced in bull markets, in periods of relatively favorable investor sentiment, in periods of extremely high market returns, and in markets with short‐sale constraints. We also find that individual investors trade more in response to market gains than institutional investors. Moreover, we find that further integration of Asian stock markets with US stock markets after the Asian financial crisis in 1998 is an important reason for Asian investors’ response to US market gains.     

Market Segmentation and Information Asymmetry in Chinese Stock Markets: A VAR Analysis

This study examines the market segmentation and information asymmetry patterns in Chinese stock markets. The recursive cointegration analysis confirms that each of six markets is not linked with other markets in the long run. Further, the result from data‐determined forecast error variance decomposition clearly shows that foreign investors in the Shanghai B‐share market are better informed than Chinese domestic investors in two A‐share markets and foreign investors in Shenzhen and Hong Kong markets over time. The finding challenges a widespread assumption of less informed foreign investors in the literature, but suggests that foreign investors could be more informed in emerging markets.     

Institutional investors: Arbitrageurs or rational trend chasers

This paper studies the relationship between institutional investor holdings and stock misvaluation in the U.S. between 1980 and 2010. I find that institutional investors overweigh overvalued and underweigh undervalued stocks in their portfolio, taking the market portfolio as a benchmark. Cross-sectionally, institutional investors hold more overvalued stocks than undervalued stocks. The time-series studies also show that institutional ownership of overvalued portfolios increases as the portfolios' degree of overvaluation. As an investment strategy, institutional investors' ride of stock misvaluation is neither driven by the fund flows from individual investors into institutions, nor industry-specific. Consistent with the agency problem explanation, investment companies and independent investment advisors have a higher tendency to ride stock misvaluation than other institutions. There is weak evidence that institutional investors make a profit by riding stock misvaluation. My findings challenge the models that view individual investors as noise traders and disregard the role of institutional investors in stock market misvaluation.     

Trading patterns of big versus small players in an emerging market: An empirical analysis

This study uses a Vector Autoregressive (VAR) model to examine interdependencies among institutional investors, big individual investors, and small individual investors, and the effects of their trading on stock returns on the Taiwan Stock Exchange (TSE). The results imply that, during the sample period, big individual investors are the most well informed players; their trading affects not only stock returns but also small individual investors. Small individual investors are not well informed and are slow learners. Their orders to trade tend to provide liquidity to institutional and big individual investors, but there is no compensation for their liquidity services. We find that institutional investors follow neither positive-feedback nor negative-feedback trading strategies. Overall, the responses to shocks, except for those of small individual investors, decay quickly, indicating that the TSE can absorb shocks quickly and efficiently. Our analysis implies that small individual investors would be better off institutionalizing their investment decisions (e.g., by investing in mutual funds).     

The Sensitivity of Individual and Institutional Investors' Expectations to Changing Market Conditions: Evidence from Closed-End Funds

This study investigates whether individual and institutional investors respond differently to changes in market conditions. Closed-end funds are the medium used to test the hypothesis because closed-end fund shares (held primarily by individual investors) and the underlying assets (held primarily by institutional investors) are claims to the same stream of distributions. The empirical results suggest that individual investors are more responsive than institutional investors to changes in market conditions. Moreover, although the response of institutional investors differs across stock and bond markets, we cannot reject the hypothesis that the additional sensitivity of individual investors' expectations is uniform across stock and bond markets.     

Futures Market Sentiment and Institutional Investor Behavior in the Spot Market: The Emerging Market in Taiwan

This paper investigates whether and how futures market sentiment and stock market returns heterogeneously affect the trading activities of institutional investors in the spot market in Taiwan. Our empirical results suggest that foreign investors are net sellers whenever futures market sentiment is bullish and net buyers when investor sentiment is bearish. The two types of domestic institutional investors have poor sentiment timing abilities and the price-pressure effect may account for the behavioral differences among institutional investors. In addition, all three institutional investors are momentum traders. Nevertheless, the momentum trading of foreigners is consistent with an information-based model and that of two local institutional investors, as behavior-based models suggest. This indicates that the same trading momentum strategy can lead to different outcomes for different investors, and both information- and behavior-based momentum trading can exist contemporaneously in the Taiwanese stock market.     

机构投资者影响我国股价波动的实证研究

采用 TGARCH 模型对机构投资者与我国股指波动的关系进行研究,实证结果表明：无论是否考虑宏观经济因素对股票市场的影响,机构投资者对我国股票市场波动均产生正向影响。进一步用面板数据模型对机构投资者与上市公司股价波动的关系进行研究,发现机构投资者在不同宏观经济环境下也均未起到稳定上市公司股价波动的作用。     

Family control,multiple institutional block-holders,and informed trading

This paper investigates how large family shareholders and institutional block-holders jointly influence informed trading and firm valuation in the Hong Kong stock market. It combines market microstructure research with studies on the governance roles of multiple block-holders and finds that institutional block-holders rely on their relative controlling power vis-à-vis family owners to mitigate problems associated with informed trading. They also use their ownership rights to improve the structure of informed trading. However, these governance roles are predominantly exercised by pressure-resistant institutional block-holders. Informed trading reduces firm valuation, while an improvement in its structure increases valuation. Therefore, the governance roles of controlling families and pressure-resistant institutional block-holders may have different implications in terms of investors’ perceptions of private information risk.     

机构持股、特质风险与股票收益的实证研究

机构投资者的投资行为对股票市场的风险与收益产生了极大的影响,机构投资者的大量参与有助于股票市场的稳定、特质风险的分散以及超额收益的减少。文章选取机构投资者持股占股票市值比例这一指标来刻画机构投资者的行为,检验机构持股比例、特质风险和股票收益之间的关系。实证发现,在中国股市,特质风险与股票收益呈显著的正相关关系;机构大量持股有助于降低股票的特质风险;机构投资者持股比例越低的股票,特质风险越大,股票预期收益越高。     

Who exacerbates the extreme swings in the Chinese stock market?

We investigate which investors buy or sell relatively more on the days when the absolute value of market returns or the daily range of market index prices exceeds 5% in the Chinese stock market. Unlike Dennis and Strickland [Journal of Finance 57(5): 1923–1949 (2002)] who find that institutional investors are buying (selling) more when there is a large market increase (decline) in U.S. equity markets, we find that institutional investors in China are systematically buying more than the less sophisticated individual investors during extreme market swings, particularly on extreme market-down days. We reveal that institutional investors in China (primarily pension funds), provide a stabilizing influence during market downturn days. Our findings highlight the benefits of having active institutional investors in an extremely volatile emerging market dominated by less sophisticated individual investors.     

信息不确定、坏消息与投资者交易行为

本文以2000年至2010年的A股上市公司违法违规事件为样本,分析该类事件中信息不确定性的影响,以及市场反应中的投资者交易行为。研究发现:上市公司市场价值在事件日呈显著下跌;然而,与直觉有些相悖的是,信息不确定程度与超额累积收益呈显著正相关,这意味着在坏消息到来时,不确定性反而提高了股票的市场价值;最后,通过对各类投资者在此类事件中的净买入情况分析,我们发现不同投资者的交易行为有明显差异。机构投资者在坏消息中采用了反向交易策略,并且知情交易促进机构投资者的买入。     

Foreign and Local Institutional Ownership and the Speed of Price Adjustment

Abstract:  This paper examines the relation between the speed of price adjustment and stock ownership by foreign and local institutional investors using data from the Korean stock market. We show that returns of stocks with high foreign institutional ownership lead returns of stocks with low foreign institutional ownership, especially after foreign ownership restriction is lifted. Likewise, returns of stocks with high local institutional ownership lead returns of stocks with low local institutional ownership. These results support the idea that foreign institutional (local institutional) investors have faster access to or processing power of new information than local institutional (local individual) investors.     

The trading behavior of foreign,domestic institutional,and domestic individual investors: Evidence from the Taiwan stock market

In this paper, we apply the threshold cointegration model of Hansen and Seo (2002), incorporating differences in the nonlinear behavior of investors across regimes. An examination of the trading behavior of foreign, domestic institutional, and domestic individual investors in Taiwan revealed no predominance among the three types of investors. When the market was near equilibrium, the purchases of domestic individual investors positively impacted stock prices. This finding, which is consistent with Choe et al. (2005), suggests that domestic individual investors have an edge in investment performance over other types of investors. However, when the market departed substantially from equilibrium, the purchases of foreign and domestic institutional investors predicted a rise in stock prices. On the other hand, domestic individuals traded at worse stock prices; these prices tended to fall (rise) after the purchase (sale).     

Institutional stock trading on loan market information

One of the most important developments in the corporate loan market over the past decade has been the growing participation of institutional investors. As lenders, institutional investors routinely receive private information about borrowers. However, most of these investors also trade in public securities. This leads to a controversial question: Do institutional investors use private information acquired in the loan market to trade in public securities? This paper examines the stock trading of institutional investors whose portfolios also hold loans. Using the Securities and Exchange Commission filings of loan amendments, we identify institutional investors with access to private information disclosed during loan amendments. We then look at abnormal returns on subsequent stock trades. We find that institutional participants in loan renegotiations subsequently trade in the stock of the same company and outperform trades by other managers and trades in other stocks by approximately 5.4% in annualized terms.     

Do institutional investors destabilize stock prices? evidence from an emerging market

In this paper, we provide empirical evidence on the impact of institutional investors on stock market returns dynamics in Poland. The Polish pension system reform in 1999 and the associated increase in institutional ownership due to the investment activities of pension funds are used as a unique institutional characteristic. We find robust empirical evidence that the increase of institutional ownership has changed the autocorrelation and volatility structure of aggregate stock returns. However, the findings do not support the hypothesis that institutional investors have destabilized stock prices. The results are interpretable in favor of a stabilizing effect on index stock returns induced by institutional trading.     

On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information

This paper develops a theory of financial intermediation that highlights the contribution of intermediaries as informed agents in a market with imperfect information. We consider a venture capital market where the entrepreneurs select the qualities of projects and their perquisite consumptions, about which the investors are imperfectly informed. It is shown that when all investors have positive search costs, the entrepreneurs are induced to offer the unacceptable inferior projects (“lemons” only), and the investors will not enter the venture capital market, but put their funds in other low return investments–an undesirable allocation of resources. Beginning with an initial undesirable situation, the financial intermediaries may evolve as informed agents that induce a Pareto-preferred allocation, leading the investors to a higher welfare state. We focus our analysis on the existence of intermediation equilibra when the market for intermediation services is competitive. The distribution of returns on projects, the fees charged by intermediaries, and the fraction of institutional holdings are all endogenous in equilibrium. It is shown that (i) there cannot be a competitive intermediation equilibrium with very high institutional holdings, and (ii) in other cases multiple equilibra may exist, but the one with the highest institutional holdings dominates the others in a Pareto sense.     

Institutional investors and stock returns volatility: Empirical evidence from a natural experiment

In this paper, we provide empirical evidence on the impact of institutional investors on stock market returns dynamics. The Polish pension system reform in 1999 and the associated increase in institutional ownership due to the investment activities of pension funds are used as a unique institutional characteristic. Performing a Markov-switching-GARCH analysis we find empirical evidence that the increase of institutional ownership has temporarily changed the volatility structure of aggregate stock returns. The results are interpretable in favor of a stabilizing effect on index stock returns induced by institutional investors.     

Marketwide Private Information in Stocks: Forecasting Currency Returns

We present a model of equity trading with informed and uninformed investors where informed investors trade on firm‐specific and marketwide private information. The model is used to identify the component of order flow due to marketwide private information. Estimated trades driven by marketwide private information display little or no correlation with the first principal component in order flow. Indeed, we find that co‐movement in order flow captures variation mostly in liquidity trades. Marketwide private information obtained from equity market data forecasts industry stock returns, and also currency returns.     

Economic policy uncertainty,investor attention and post-earnings announcement drift

How the market incorporates information into stock price is a core issue in finance. This study focuses on the impact of economic policy uncertainty (EPU) on the stock prices information efficiency of China's A-share market and underlying role of investors' attention allocation mechanism. This study analyzes the information efficiency of stock prices using the sensitivity of stock cumulative abnormal return to earnings information across different windows following earnings announcement. Based on the earnings announcement events of listed companies in China's A-share market, this study presents an empirical study of the aforementioned issues using event study and regression analysis methods. The following results are seen: (1) EPU aggravates the underreaction of stock price earnings information and the post-earnings announcement drift in the A-share market. (2) Under highly uncertain economic policies, investors show a limited attention allocation pattern of devoting increasing attention to macroeconomic policies and decreasing attention to earnings information, which leads to a decrease in the information efficiency of stock price. This study also analyzes the heterogeneity of the influence of EPU on stock price information efficiency using the institutional shareholding ratio. The results show that increasing institutional shareholding does not reduce the adverse effects of EPU on the information efficiency of stock prices. This study not only provides empirical evidence for Brunnermeier, Sockin, and Xiong (2022) and rational inattention theory, but also reveals that institutional investors show similar behavioral characteristics to retail investors in China's stock market. The results of this study have policy significance for improving the information efficiency of stock market.