Effect of investor category trading imbalances on stock returns

David Colwell, Julia Henker, Terry Walter

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Trading is the mechanism of the economist's ‘invisible hand,’ the means by which price discovery occurs. We use daily shareholdings data from the Australian equities clearinghouse to investigate the impact of the trading imbalances of investor categories on stock returns. Our evidence does not contradict the behavioral finance assumption that the trading of individual investors contributes to price discovery. Furthermore, we find that, while the trading of all investor categories Granger-causes returns, returns Granger-cause trading only for the individual investor category. That is, in the short term of up to 1 month, only individual investors engage in feedback trading.
Original languageEnglish
Pages (from-to)179-206
Number of pages28
JournalInternational Review of Finance
Volume8
Issue number3/4
DOIs
Publication statusPublished - 1 Sep 2008
Externally publishedYes

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Investors
Stock returns
Imbalance
Individual investors
Price discovery
Shareholding
Economists
Equity
Behavioral finance
Feedback trading
Clearinghouse

Cite this

Colwell, David ; Henker, Julia ; Walter, Terry. / Effect of investor category trading imbalances on stock returns. In: International Review of Finance. 2008 ; Vol. 8, No. 3/4. pp. 179-206.
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Effect of investor category trading imbalances on stock returns. / Colwell, David; Henker, Julia; Walter, Terry.

In: International Review of Finance, Vol. 8, No. 3/4, 01.09.2008, p. 179-206.

Research output: Contribution to journalArticleResearchpeer-review

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