Institutional versus retail traders: a comparison of their order flow and impact on trading on the Australian Stock Exchange

Research output: ThesisDoctoral Thesis

Standard

Institutional versus retail traders: a comparison of their order flow and impact on trading on the Australian Stock Exchange. / Wee, Marvin.

2005.

Research output: ThesisDoctoral Thesis

Harvard

Wee, M 2005, 'Institutional versus retail traders: a comparison of their order flow and impact on trading on the Australian Stock Exchange', Doctor of Philosophy.

APA

Wee, M. (2005). Institutional versus retail traders: a comparison of their order flow and impact on trading on the Australian Stock Exchange

Vancouver

Wee M. Institutional versus retail traders: a comparison of their order flow and impact on trading on the Australian Stock Exchange. 2005.

Author

Wee, Marvin. / Institutional versus retail traders: a comparison of their order flow and impact on trading on the Australian Stock Exchange. 2005.

Bibtex

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@misc{c7906b0c8796446f99b1d1b09fc42720,
title = "Institutional versus retail traders: a comparison of their order flow and impact on trading on the Australian Stock Exchange",
abstract = "The objective of the thesis is to examine the trading behaviour and characteristics of retail and institutional traders on the Australian Stock Exchange. There are three aspects of these traders that are of particular interest to this study: (1) the information content of their trades, (2) their order placement strategies, and (3) the impact of their trading on share price volatility. Trades made on the basis of private information such as those by institutional traders are found to be associated with larger permanent price changes while trades by uninformed traders such as retail traders are found to be associated with smaller changes. In addition, institutional trades are found to have smaller total price effect compared to retail trades suggesting retail traders incur higher market impact costs. In order to profit from potentially short-lived information advantage, informed traders are expected to place more aggressive orders. The analysis of the order price aggressiveness showed institutions are more aggressive than other traders. In addition, retail traders are found to be less aware of the state of the market when placing aggressive orders. The analysis of the limit order book found significant differences between the contributions of institutional and retail traders to the depth of the limit-order book, with retail standing limit orders further from the market. This is consistent with the conjecture that uninformed traders such as retail traders have greater expected adverse selection costs. The effect of trading by retail and institutional traders on price volatility are also investigated. There is some evidence that retail traders are more active and institutional traders are proportionally less active after periods of high volatility. Also, the effect of the order activity from different trader types on volatility differs depending on the measure of order activity used.",
keywords = "Stocks, Individual investors, Institutional investors, Retail traders, Order placement strategy, Institutional traders, Market volatility",
author = "Marvin Wee",
year = "2005",

}

RIS

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TY - THES

T1 - Institutional versus retail traders: a comparison of their order flow and impact on trading on the Australian Stock Exchange

AU - Wee,Marvin

PY - 2005

Y1 - 2005

N2 - The objective of the thesis is to examine the trading behaviour and characteristics of retail and institutional traders on the Australian Stock Exchange. There are three aspects of these traders that are of particular interest to this study: (1) the information content of their trades, (2) their order placement strategies, and (3) the impact of their trading on share price volatility. Trades made on the basis of private information such as those by institutional traders are found to be associated with larger permanent price changes while trades by uninformed traders such as retail traders are found to be associated with smaller changes. In addition, institutional trades are found to have smaller total price effect compared to retail trades suggesting retail traders incur higher market impact costs. In order to profit from potentially short-lived information advantage, informed traders are expected to place more aggressive orders. The analysis of the order price aggressiveness showed institutions are more aggressive than other traders. In addition, retail traders are found to be less aware of the state of the market when placing aggressive orders. The analysis of the limit order book found significant differences between the contributions of institutional and retail traders to the depth of the limit-order book, with retail standing limit orders further from the market. This is consistent with the conjecture that uninformed traders such as retail traders have greater expected adverse selection costs. The effect of trading by retail and institutional traders on price volatility are also investigated. There is some evidence that retail traders are more active and institutional traders are proportionally less active after periods of high volatility. Also, the effect of the order activity from different trader types on volatility differs depending on the measure of order activity used.

AB - The objective of the thesis is to examine the trading behaviour and characteristics of retail and institutional traders on the Australian Stock Exchange. There are three aspects of these traders that are of particular interest to this study: (1) the information content of their trades, (2) their order placement strategies, and (3) the impact of their trading on share price volatility. Trades made on the basis of private information such as those by institutional traders are found to be associated with larger permanent price changes while trades by uninformed traders such as retail traders are found to be associated with smaller changes. In addition, institutional trades are found to have smaller total price effect compared to retail trades suggesting retail traders incur higher market impact costs. In order to profit from potentially short-lived information advantage, informed traders are expected to place more aggressive orders. The analysis of the order price aggressiveness showed institutions are more aggressive than other traders. In addition, retail traders are found to be less aware of the state of the market when placing aggressive orders. The analysis of the limit order book found significant differences between the contributions of institutional and retail traders to the depth of the limit-order book, with retail standing limit orders further from the market. This is consistent with the conjecture that uninformed traders such as retail traders have greater expected adverse selection costs. The effect of trading by retail and institutional traders on price volatility are also investigated. There is some evidence that retail traders are more active and institutional traders are proportionally less active after periods of high volatility. Also, the effect of the order activity from different trader types on volatility differs depending on the measure of order activity used.

KW - Stocks

KW - Individual investors

KW - Institutional investors

KW - Retail traders

KW - Order placement strategy

KW - Institutional traders

KW - Market volatility

M3 - Doctoral Thesis

ER -

ID: 3244422