Investors' Trading Behaviour and Stock Market Volatility during Crisis Periods: A Dual Long-Memory Model for the Korean Stock Exchange

Guglielmo Maria Caporale, Menelaos Karanasos, Stavroula Yfanti and Aris Kartsaklas

No 7984, CESifo Working Paper Series from CESifo

Abstract: This study examines the impact of investors’ buy and sell trades on Korean stock market volatility across two crisis events, the Asian crisis of 1997 and the 2008 global financial crash. We investigate the trading behaviour of domestic vs. foreign and institutional vs. individual investors. Our results suggest that the buy and sell trades have an asymmetric effect on volatility that depends on the type of investor trading and on the phase of the business cycle. Buy orders appear to be more informative than sell orders since they mostly lower volatility in the pre-crisis periods, while sell and post-crisis buy trades affect volatility positively regardless of who trades (institutional or individual investors) and on what information (member, non-member). Most importantly, decomposing total buy and sell trades into trader-type categories reveals that some institutional investors are more informed traders that stabilize the market compared to individuals that always increase volatility. Foreign investors reduce volatility with their purchases and total trading activity in the whole Asian crisis sample, but only in the pre-crisis period before the recent global financial turmoil.

Keywords: financial crisis; foreign investors; individual investors; institutional investors; long memory; range-based volatility; structural change; trading volume (search for similar items in EconPapers)
JEL-codes: G01 G12 G15 G23 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-mst and nep-sea
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Journal Article: Investors' trading behaviour and stock market volatility during crisis periods: A dual long‐memory model for the Korean Stock Exchange (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7984

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