Information acquisition and processing skills of institutions and retail investors around information shocks

Scott Fung, Khaled Obaid and Shih-Chuan Tsai

Journal of Empirical Finance, 2024, vol. 77, issue C

Abstract: Using audit trail data from the Taiwan Stock Exchange, this paper compares the trading skill of institutions and individuals around information shocks. We find suggestive evidence that institutions possess information acquisition and processing advantages over individuals. Specifically, net buying done by institutions (individuals) prior to and during jumps positively (negatively) predicts future intraday returns. This predictive relation is strongest among stocks with high limits to arbitrage and a limited information environment. Moreover, domestic institutions generate higher trading profits than foreign institutions. Unlike domestic institutions, the information acquisition and processing advantages of foreign institutions prevail across different sources of price jumps, such as prescheduled events and macroeconomic news. Prescheduled events and news lessen the information disadvantages for individuals.

Keywords: Information shocks; Price jumps; Trade imbalance; Investor heterogeneity (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G19 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:77:y:2024:i:c:s0927539824000306

DOI: 10.1016/j.jempfin.2024.101495

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