Stock-return volatility and daily equity trading by investor groups in Korea

• Published in: Pacific-Basin finance journal Vol. 34; pp. 43 - 70
• Main Authors: Umutlu, Mehmet, Shackleton, Mark B.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-09-2015
• Subjects: Investor groups; Stock-return volatility; Trading; Stock-return volatility; Trading; Investor groups; G12; G15
• ISSN: 0927-538X; 1879-0585
• DOI: 10.1016/j.pacfin.2015.05.003

We examine the short-run relationship between stock-return volatility and daily equity trading by several investor groups in the Korean Stock Exchange. We also investigate whether trade characteristics and trading styles can explain the potential distinct volatility effects of these investor groups. For large stocks, we find that whether a trade is a purchase or a sale and whether it is a contrarian or a momentum trade does not play a role in the relation between volatility and trading. It is the trading of informed institutional investors against non-informed individual investors that drives volatility and produces a negative volatility effect. We further show that net foreign trading has an increasing impact on volatility though it is not always significant. Our results are robust to alternative measures of volatility and obtained after controlling for volatility persistency, total volume and lagged stock returns.
•The link between return volatility and equity trading by investor groups is examined.•For large stocks, whether a trade is a buy or a sale doesn't matter for this link.•Whether a trade is a contrarian or a momentum trade doesn't matter, too.•Trading between institutional and individual investors decreases volatility.•Foreign trading has an increasing impact on volatility.