Volatility Effects of Institutional Trading in Foreign Stocks

Publication Type

Journal Article

Publication Date

2006

Abstract

This paper examines the impact of institutional trades on volatility in international stocks across 43 countries. There is a temporary volatility spike during the trade execution period, merely reflecting the price impact costs faced by the institutions. Cross sectional regressions suggest that trade imbalances, enforcement of insider trading laws, stock prices, and an emerging market classification are positively associated with temporary volatility increases whereas the presence of market makers and better shareholders' rights dampen such increases. In the long term, institutional trades do not destabilize markets as the levels of volatility after their trades are almost identical to their pre-decision levels.

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Banking and Finance

Volume

30

Issue

8

First Page

2199

Last Page

2214

ISSN

0378-4266

Identifier

10.1016/j.jbankfin.2005.06.001

Publisher

Elsevier

Link to Full Text

Share

COinS