Market Composition Essay -- Global Finance, Investments

Over the past two decades, a panoply of behavioral finance research has been devoted to exploring the vocation patterns of behavior and calling performance of private and institutional investor categories over time and across exchanges. In fact, this intriguing research topic is of considerable interest to academic scholars and merchandise practitioners alike, because it has great academic value and practical implications for industry. Specific bothy, capturing the trading pattern and investing performance of each investor group within a particular countrified can cast light on some worthwhile issues much(prenominal) as market composition, information transmission, asset price formation, and market capability and liquidity. Due, in part, to the information asymmetry evidenced amongst institutional investors and individual investors (e.g., Alangar et al., 1999 Lin et al., 2007 Duong et al., 2009), each group is more likely to have its unique characteristics. In their 2008 st udy, Kaniel et al. point out that institutional investors are by and large perceive to be better-informed rational traders, and to have a rather long-term enthronisation perspective. In contrast, individual investors are generally viewed as unsophisticated traders, who privilege short-term investment horizons and are deeply involved in qualification sentiment-driven investment decisions based on their own cognitive biases. On the separate hand, researchers working in the area of behavioral finance distinguish between two acknowledged trading patterns premised on investors reactions to the past price movements of stocks. The offset printing pattern of behavior is labeled as momentum investing or positive feedback trading, in which investors purchase (sell) a stock in prediction of a further rise (d... ...kes (2011) report significant evidence that all three investor types especially insurers are more contrarian when selling than buying, which suggests that investors are ind isposed(p) to realize losses, in conformity with the evidence presented by Grinblatt and Keloharju (2001) and Odean (1998).More recently, Phansatan et al. (2012) attempt the Stock Exchange of Thailand (SET) and find that individual and institutional investors appear to be contrarian traders as opposed to foreign investors who are shown to be positive feedback traders. Interestingly, the trading strategies of institutions in the Thai stock market lead to very outclassed security section, and thus very poor overall trading performance. On the other hand, the trading behavior of individual investors brings about gains from security section, solely their poor market timing counterbalances these gains.