Foreign institutions, local investors and momentum trading

Reza Bradrania and Winston Wu

Journal of Empirical Finance, 2023, vol. 73, issue C, 40-64

Abstract: We study momentum and contrarian trading of foreign and local institutions as well as local individuals using a unique ownership dataset from the Australian stock market. We find that foreign institutions are momentum investors, whereas local investors are contrarians. However, momentum trading by foreign institutions is reversed during the Global Financial Crisis indicating that their trading behavior is time-varying. We further show that momentum trading by foreign institutions decreases following a period of low market return, high market illiquidity, high market volatility, or high volatility of the momentum portfolio. Also, momentum trading by foreign institutions predicts momentum profits. We show that the disposition effect partly explains the contrarian trading by local investors, suggesting that foreign institutions’ tendency to momentum trading cannot be solely attributed to their liquidity provision to local investors.

Keywords: Momentum trading; Investor behavior; Foreign investors; Individual investors; Local investors; Institutional investors; Investor types (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:73:y:2023:i:c:p:40-64

DOI: 10.1016/j.jempfin.2023.05.005

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