Market Composition Essay -- Global Finance, Investments

Over the past two decades, a panoply of behavioral finance research has been devoted to exploring the duty patterns of behavior and affair performance of mortal and institutional investor categories over time and across exchanges. In fact, this intriguing research topic is of considerable interest to academic scholars and foodstuff practitioners alike, because it has great academic value and practical implications for industry. Specific everyy, capturing the trading pattern and enthronement performance of each investor group within a particular kingdom can cast light on some worthwhile issues such(prenominal) as market composition, information transmission, asset price formation, and market competency and liquidity. Due, in part, to the information asymmetry evidenced mingled with 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 study, Kaniel et al. point out that institutional investors are by and large perceived to be better-informed rational traders, and to have a rather long-term enthronization perspective. In contrast, individual investors are generally viewed as unsophisticated traders, who prefer short-term investment horizons and are deeply involved in making sentiment-driven investment decisions based on their own cognitive biases. On the early(a) 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 prototypic pattern of behavior is labeled as momentum investing or positive feedback trading, in which investors purchase (sell) a stock in presentiment 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 unwilling to realize losses, in conformity with the evidence presented by Grinblatt and Keloharju (2001) and Odean (1998).More recently, Phansatan et al. (2012) date 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 subscript 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, scarce their poor market timing counterbalances these gains.