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Do Domestic Institutional Trades Exacerbate Information Asymmetry? Evidence from the Korean Stock Market

Chune Young Chung (), Yunjae Lee () and Doojin Ryu ()
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Chune Young Chung: Chung-Ang University
Yunjae Lee: Chung-Ang University
Doojin Ryu: Sungkyunkwan University

Asia-Pacific Financial Markets, 2017, vol. 24, issue 4, 309-322

Abstract: Abstract We analyze a trading dataset from the Korean stock market, a representative and leading emerging equity market, to study the impact of domestic institutional trades on information asymmetry. Using the bid–ask spread as a proxy for the adverse selection cost imposed by information asymmetry, we empirically examine the relationship between domestic institutional trades and their corresponding bid–ask spreads. We find that bid–ask spreads tend to increase when the trading volume of domestic institutional investors is high, suggesting that such investors tend to aggravate information asymmetry as informed traders in the Korean stock market.

Keywords: Bid–ask spread; Domestic institution; Information asymmetry; Institutional trade; Korean stock market (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:apfinm:v:24:y:2017:i:4:d:10.1007_s10690-017-9235-0