Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-04T19:15:52.741Z Has data issue: false hasContentIssue false

Buyers versus Sellers: Who Initiates Trades, and When?

Published online by Cambridge University Press:  16 December 2016

Abstract

Models that examine investors’ motivations to trade often make opposite predictions about the relation between trading decisions and past returns. We find that, in the aggregate, both buyer- and seller-initiated trades increase with past returns. The difference between buyer- and seller-initiated trades is negatively related to short horizon returns but positively related to returns over longer horizons. Tax-loss-related seller-initiated trades in December and January are accompanied by increased buyer-initiated trades. Past returns significantly affect trading decisions, and these findings are consistent with a number of different models of trading behavior.

Type
Research Article
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Barber, B. M., and Odean, T.. “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.” Journal of Finance, 55 (2002), 773806.Google Scholar
Ben-David, I., and Hirshleifer, D.. “Are Investors Really Reluctant to Realize Their Losses? Trading Responses to Past Returns and the Disposition Effect.” Review of Financial Studies, 25 (2012), 24852532.CrossRefGoogle Scholar
Brennan, M. J., and Cao, H.. “International Portfolio Investment Flows.” Journal of Finance, 52 (1997), 18511880.CrossRefGoogle Scholar
Brown, P.; Keim, D. B.; Kleidon, A. W.; and Marsh, T. A.. “Stock Return Seasonalities and the Tax-Loss Selling Hypothesis: Analysis of the Arguments and Australian Evidence.” Journal of Financial Economics, 12 (1983), 105127.Google Scholar
Chakrabarty, B.; Moulton, P. C.; and Shkilko, A.. “Short Sales, Long Sales, and the Lee–Ready Trade Classification Algorithm Revisited.” Journal of Financial Markets, 15 (2012), 467491.Google Scholar
Chan, K. C.Can Tax-Loss Selling Explain the January Seasonal in Stock Returns?Journal of Finance, 41 (1986), 11151128.Google Scholar
Chordia, T.; Roll, R.; and Subrahmanyam, A.. “Market Liquidity and Trading Activity.” Journal of Finance, 56 (2001), 501530.Google Scholar
Chordia, T.; Roll, R.; and Subrahmanyam, A.. “Evidence on the Speed of Convergence to Market Efficiency.” Journal of Financial Economics, 76 (2005), 271292.Google Scholar
Constantinides, G.Optimal Stock Trading with Personal Taxes: Implications for Prices and the Abnormal January Returns.” Journal of Financial Economics, 13 (1984), 6589.Google Scholar
de Haan, L., and Kakes, J.. “Momentum or Contrarian Investment Strategies: Evidence from Dutch Institutional Investors.” Journal of Banking and Finance, 35 (2011), 22452251.Google Scholar
De Long, J. B.; Shleifer, A.; Summers, L. H.; and Waldmann, R. J.. “Noise Trader Risk in Financial Markets.” Journal of Political Economy, 98 (1990), 703738.CrossRefGoogle Scholar
Ellis, K.; Michaely, R.; and O’Hara, M.. “The Accuracy of Trade Classification Rules: Evidence from NASDAQ.” Journal of Financial and Quantitative Analysis, 35 (2000), 529551.Google Scholar
Gibson, S.; Safieddine, A.; and Titman, S.. “Tax-Motivated Trading and Price Pressure: An Analysis of Mutual Fund Holdings.” Journal of Financial and Quantitative Analysis, 35 (2000), 369386.Google Scholar
Gompers, P., and Metrick, A.. “Institutional Investors and Equity Prices.” Quarterly Journal of Economics, 116 (2001), 229259.Google Scholar
Grinblatt, M., and Keloharju, M.. “The Investment Behavior and Performance of Various Investor Types: A Study of Finland’s Unique Data Set.” Journal of Financial Economics, 55 (2000), 4367.CrossRefGoogle Scholar
Grinblatt, M.; Titman, S.; and Wermers, R.. “Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior.” American Economic Review, 85 (1995), 10881105.Google Scholar
Harris, M., and Raviv, A.. “Differences of Opinion Make a Horse Race.” Review of Financial Studies, 6 (1993), 473506.Google Scholar
Hong, H., and Stein, J. C.. “A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets.” Journal of Finance, 54 (1999), 21432184.Google Scholar
Hvidkjaer, S.A Trade-Based Analysis of Momentum.” Review of Financial Studies, 19 (2006), 457491.Google Scholar
Jegadeesh, N.Evidence of Predictable Behavior of Security Returns.” Journal of Finance, 45 (1990), 881898.Google Scholar
Jegadeesh, N., and Titman, S.. “Returns to Buying Winners and Selling Losers: Implications for Market Efficiency.” Journal of Finance, 48 (1993), 6591.Google Scholar
Jones, C. M.; Kaul, G.; and Lipson, M. L.. “Transactions, Volume, and Volatility.” Review of Financial Studies, 7 (1994), 631651.Google Scholar
Jones, C. P.; Pearce, D. K.; and Wilson, J. W.. “Can Tax-Loss Selling Explain the January Effect? A Note.” Journal of Finance, 42 (1987), 453461.Google Scholar
Kaniel, R.; Saar, G.; and Titman, S.. “Individual Investor Trading and Stock Returns.” Journal of Finance, 63 (2008), 273310.Google Scholar
Kyle, A.Continuous Auctions and Insider Trading.” Econometrica, 53 (1985), 13151335.CrossRefGoogle Scholar
Lakonishok, J.; Shleifer, A.; and Vishny, R. W.. “The Impact of Institutional Trading on Stock Prices.” Journal of Financial Economics, 32 (1992), 2343.CrossRefGoogle Scholar
Lakonishok, J., and Smidt, S.. “Volume for Winners and Losers: Taxation and Other Motives for Trading.” Journal of Finance, 41 (1986), 951974.Google Scholar
Lee, C. M. C., and Radhakrishna, B.. “Inferring Investor Behavior: Evidence from TORQ Data.” Journal of Financial Markets, 3 (2000), 88111.Google Scholar
Lee, C. M. C., and Ready, M. J.. “Inferring Trade Direction from Intraday Data.” Journal of Finance, 46 (1991), 733746.Google Scholar
Newey, W. K., and West, K. D.. “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703708.Google Scholar
Ng, L., and Wu, F.. “The Trading Behavior of Institutions and Individuals in Chinese Equity Markets.” Journal of Banking and Finance, 31 (2007), 26952710.Google Scholar
Nofsinger, J. R., and Sias, R. W.. “Herding and Feedback Trading by Institutional and Individual Investors.” Journal of Finance, 54 (1999), 22632295.CrossRefGoogle Scholar
Odders-White, E.On the Occurrence and Consequences of Inaccurate Trade Classification.” Journal of Financial Markets, 3 (2000), 259286.Google Scholar
Odean, T.Are Investors Reluctant to Realize Their Losses?Journal of Finance, 52 (1998), 17751798.Google Scholar
Poterba, J. M., and Weisbenner, S. J.. “Capital Gains Tax Rules, Tax-Loss Trading, and Turn-of-the-Year Returns.” Journal of Finance, 56 (2001), 353368.Google Scholar
Reinganum, M. R.The Anomalous Stock Market Behavior of Small Firms in January: Empirical Tests for Tax-Loss Selling Effects.” Journal of Financial Economics, 12 (1983), 89104.Google Scholar
Reinganum, M. R., and Shapiro, A. C.. “Taxes and Stock Return Seasonality: Evidence from the London Stock Exchange.” Journal of Business, 60 (1987), 281295.Google Scholar
Roll, R.Vas Ist Das? The Turn-of-the-Year Effect and the Return Premia of Small Firms.” Journal of Portfolio Management, 9 (1983), 1828.Google Scholar
Sarkar, A., and Schwartz, R. A.. “Market Sidedness: Insights into Motives for Trade Initiation.” Journal of Finance, 54 (2009), 375423.CrossRefGoogle Scholar
Schultz, P.Personal Income Taxes and the January Effect: Small Firm Stock Returns Before the War Revenue Act of 1917: A Note.” Journal of Finance, 40 (1985), 333343.Google Scholar
Shefrin, H., and Statman, M.. “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence.” Journal of Finance, 40 (1985), 777791.CrossRefGoogle Scholar
Sias, R. W.Institutional Herding.” Review of Financial Studies, 17 (2004), 165206.Google Scholar
Statman, M.; Thorley, S.; and Vorkink, K.. “Investor Overconfidence and Trading Volume.” Review of Financial Studies, 19 (2006), 15311565.Google Scholar
Wang, J.A Model of Competitive Stock Trading Volume.” Journal of Political Economy, 102 (1994), 127168.Google Scholar
Supplementary material: File

Chordia supplementary material

Appendix

Download Chordia supplementary material(File)
File 440 KB