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Book part
Publication date: 23 December 2005

Akiko Kamesaka

This paper investigates aggregate buying and selling by foreign investors, subdivided into US, European and Asian investors, in the Japanese stock market over the period…

Abstract

This paper investigates aggregate buying and selling by foreign investors, subdivided into US, European and Asian investors, in the Japanese stock market over the period 1981–2004. The results indicate that in the late 1990s US investors began to take more active positions than other foreign investors, and traded with good timing from the middle of the 1990s. US investors were also generally better than other investors when completing net purchases. While European and Asian investors also traded with good timing, other foreign investors generally did not net purchase or sell with good timing.

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Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

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Book part
Publication date: 27 September 2011

Narjess Boubakri, Jean-Claude Cosset and Hyacinthe Y. Somé

Institutional investors have increasingly gained importance since the early 1990s. The assets under management in these funds have increased threefold since 1990 to reach…

Abstract

Institutional investors have increasingly gained importance since the early 1990s. The assets under management in these funds have increased threefold since 1990 to reach more than US$45 trillion in 2005, including over US$20 trillion in equity (Ferreira & Matos, 2008). Further, the value of institutional investors' assets represents roughly 162.6% of the OECD gross domestic product in 2005 (Gonnard, Kim, & Ynesta, 2008). Given the magnitude of institutional investors' holdings relative to the world market capitalization, challenging questions on the economic role of these investors have been raised. One such question concerns their impact on the stability of stock markets. On the one hand, active strategies of buying and selling shares by these investors may contribute to moving stock prices away from their fundamental values. On the other hand, if all institutional investors react to the same information in a timely manner, they are in fact helping to increase market efficiency by speeding up the adjustment of prices to new fundamentals (for competing theories on the role of institutional investors, see, e.g., Lakonishok, Shleifer, & Vishny, 1992). This view of institutional investors as “efficiency drivers” generated considerable debate for many years (see, e.g., Ferreira & Laux, 2007; French & Roll, 1986).

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Institutional Investors in Global Capital Markets
Type: Book
ISBN: 978-1-78052-243-2

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Article
Publication date: 2 December 2021

Jinesh Jain, Nidhi Walia, Manpreet Kaur and Simarjeet Singh

The advocates of behavioural finance have denounced the existing literature on investors’ rationality in the decision-making process and questioned the existence of…

Abstract

Purpose

The advocates of behavioural finance have denounced the existing literature on investors’ rationality in the decision-making process and questioned the existence of efficient markets and rational investors. Although diversified research has been conducted in the area of behavioural finance, yet there is a need of further explorations into the field as the available knowledge base is confined to one or a few behavioural biases confronted by investors while making investment decisions. Hence, this study aims to develop a comprehensive, reliable and valid scale to measure the behavioural biases affecting investors’ decision-making process.

Design/methodology/approach

To develop a comprehensive, reliable and valid scale for measuring the behavioural biases affecting investors’ decision-making process, rigorous multi-stage scale development methodology has been followed. Stage one started with an extensive review of the literature followed by interviews from experienced stockbrokers to clarify construct and getting novel insights about dimensions of behavioural biases. In stage two, 52 items measuring the dimensions of behavioural biases were generated and got evaluated from panel of judges. Pilot testing was done in the third stage which gave a set of 39 items. Finally, in fourth stage, data were collected from 332 individual equity investors on a 7-point Likert scale using the snowball sampling technique.

Findings

The results of the study highlighted that behavioural biases is a multidimensional phenomenon that significantly affects investors’ decisions and has different dimensions, namely, Availability Bias, Representativeness Bias, Overconfidence Bias, Market Factors, Herding, Anchoring, Mental Accounting, Regret Aversion, Gamblers’ Fallacy and Loss Aversion. The present research has developed a comprehensive, reliable and valid scale for measuring behavioural biases affecting equity investors’ decision-making process.

Originality/value

Behavioural finance is an emerging area in the field of research particularly in the Indian context which needs further exploration. The present research concentrates on rendering an empirically tested scale to the researchers for measuring the behavioural biases and its impact on investor’s decision-making. Such an instrument can contribute to making progress in the area of behavioural finance and other research studies may also find it useful to achieve their goals.

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Management Research Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2040-8269

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Article
Publication date: 30 November 2021

Lokman Tutuncu

This study aims to investigate whether underwriters exercise their allocation discretion to offer favorable discounts to institutional investors.

Abstract

Purpose

This study aims to investigate whether underwriters exercise their allocation discretion to offer favorable discounts to institutional investors.

Design/methodology/approach

The research covers 173 offerings at Borsa Istanbul between 2010 and September 2021. Two hypotheses related to allocation discretion are developed and tested by means of probit, ordinary least squares and two-stage least squares regressions. Heckman selection regressions are used for robustness tests.

Findings

Allocation discretion is catered toward institutional investors who account for more than 56% of all initial allocations adjusted by gross proceeds. Close to 84% of all gross proceeds come from offerings that allocation discretion is exercised. These discretionary offerings are sold with larger price discounts, yet provide lower initial returns, while evidence points to reallocation to retail investors due to weak demand from institutional investors.

Research limitations/implications

Despite using the population of firms in the research period, the sample size is small relative to more developed markets. The research period cannot be extended because allocation discretion is allowed in 2010.

Practical implications

The research highlights the importance of institutional and foreign investors to the equity markets. This issue is relevant due to the ongoing flight of foreign investors from emerging economies and the increasing participation of small investors in the stock markets.

Social implications

The study cautions retail investors against greater (re)allocations by underwriters who may seek to compensate for the loss of their foreign investor base and urges policymakers to regain foreign investors.

Originality/value

To the best of the authors’ knowledge, this is the first research paper to use actual discounts disclosed in the prospectus to test the predictions related to allocation discretion. The study also contributes to the emerging markets literature by documenting allocation practices of the Turkish underwriters for the first time.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 11 November 2021

Nino Martin Paulus, Marina Koelbl and Wolfgang Schaefers

Although many theories aim to explain initial public offering (IPO) underpricing, initial-day returns of US Real Estate Investment Trust (REIT) IPOs remain a “puzzle”. The…

Abstract

Purpose

Although many theories aim to explain initial public offering (IPO) underpricing, initial-day returns of US Real Estate Investment Trust (REIT) IPOs remain a “puzzle”. The literature on REIT IPOs has focused on indirect quantitative proxies for information asymmetries between REITs and investors to determine IPO underpricing. This study, however, proposes textual analysis to exploit the qualitative information, revealed through one of the most important documents during the IPO process – Form S-11 – as a direct measure of information asymmetries.

Design/methodology/approach

This study determines the level of uncertain language in the prospectus, as well as its similarity to recently filed registration statements, to assess whether textual features can solve the underpricing puzzle. It assumes that uncertain language makes it more difficult for potential investors to price the issue and thus increases underpricing. Furthermore, it is hypothesized that a higher similarity to previous filings indicates that the prospectus provides little useful information and thus does not resolve existing information asymmetries, leading to increased underpricing.

Findings

Contrary to expectations, this research does not find a statistically significant association between uncertain language in Form S-11 and initial-day returns. This result is interpreted as suggesting that uncertain language in the prospectus does not reflect the issuer's expectations about the company's future prospects, but rather is necessary because of forecasting difficulties and litigation risk. Analyzing disclosure similarity instead, this study finds a statistically and economically significant impact of qualitative information on initial-day returns. Thus, REIT managers may reduce underpricing by voluntarily providing more information to potential investors in Form S-11.

Practical implications

The results demonstrate that textual analysis can in fact help to explain underpricing of US REIT IPOs, as qualitative information in Forms S-11 decreases information asymmetries between US REIT managers and investors, thus reducing underpricing. Consequently, REIT managers are incentivized to provide as much information as possible to reduce underpricing, while investors could use textual analysis to identify offerings that promise the highest returns.

Originality/value

This is the first study which applies textual analysis to corporate disclosures of US REITs in order to explain IPO underpricing.

Details

Journal of Property Investment & Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 30 November 2021

Shilpi Gupta and Monica Shrivastava

The study aims to understand the impact of loss aversion and herding on investment decision of retail investors. The study further evaluates the mediating role of fear of…

Abstract

Purpose

The study aims to understand the impact of loss aversion and herding on investment decision of retail investors. The study further evaluates the mediating role of fear of missing out (FOMO) in retail investors on these relationships.

Design/methodology/approach

The study employed questionnaire survey to collect data from retail investors of Indian stock market. Total 323 data were collected. The collected data were examined using SmartPLS. Factor analysis and partial least square structural equation modeling were employed for fulfilling the objectives of the study.

Findings

The results of the study revealed that investment decisions of retail investors are significantly influenced by loss aversion, herd behavior as well as FOMO. Assessing the impact of herd behavior and loss aversion on investment decision in presence and absence of FOMO exposed that FOMO partially mediates these relations. The mediation was complementary in nature as the presence of FOMO increased the influence of loss aversion and herd behavior on retail investor's investment decisions.

Practical implications

Behavioral predispositions are accountable for numerous irregularities in stock markets. Thus, it is quite substantial to realize the stimulus of these partialities on investment decisions. The outcomes of this study would help financial planners and investors to keep in mind the different ways their decision outcomes could be biased and try to ignore them.

Originality/value

Though there have been many studies conducted on behavioral biases and their impact on investment decisions, there are very few studies that have taken into account the FOMO factor in investment, in context of the behavioral biases. Theoretically, FOMO has been linked with herd behavior and greed of earning more, but there are very few empirical supports to this fact. Thus, this study is an attempt to fill this gap by examining the role of FOMO on investment decisions and the different biases associated with it.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 10 November 2021

Kozo Omori and Tomoki Kitamura

Mutual fund investors assess a fund manager’s skills when allocating their capital. To identify the rationale behind retail investors’ decisions, this study aims to…

Abstract

Purpose

Mutual fund investors assess a fund manager’s skills when allocating their capital. To identify the rationale behind retail investors’ decisions, this study aims to examine the relation between mutual fund flows and abnormal returns (alpha), as well as the various risk factors in the Japanese mutual fund market, which has distinctive characteristics regarding investors and distributors.

Design/methodology/approach

Six standard asset pricing models are used to investigate how investors assess mutual fund managers’ skills: the market-adjusted return, the capital asset pricing model and the Fama–French three-factor model and its augmented versions.

Findings

Contrary to the literature, this study finds that investors in Japan mainly rely on alpha to assess mutual funds. In particular, investors respond to alpha for fund inflows and their evaluations depend on the market environment and their mutual fund search costs.

Originality/value

This study measures the response of investors to the skills of mutual fund managers in the Japanese market – especially for funds purchased through bank-related distributors that have aimed to capture inexperienced retail investors since deregulation in the 1990s – and reveals their high response to alpha.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 13 October 2021

Muhammad Ilyas, Rehman Uddin Mian and Nabeel Safdar

This study examines the effects of foreign and domestic institutional investors on the value of excess cash holdings in the context of Pakistan where the institutional…

Abstract

Purpose

This study examines the effects of foreign and domestic institutional investors on the value of excess cash holdings in the context of Pakistan where the institutional setting is broadly considered as non-friendly to outside shareholders due to family control.

Design/methodology/approach

A panel sample of 220 listed firms on the Pakistan Stock Exchange (PSX) was employed over the period 2007–2018. Data on institutional ownership are collected from the Standard & Poor’s (S&P) Capital IQ Public Ownership database, while the financial data are collected from Compustat Global. The study uses ordinary least squares (OLS) regression with year and firm fixed effects as the main econometric specification. Moreover, the application of models with alternative measures, high-dimensional fixed effects and two-stage least squares (2SLS) regression are also conducted for robustness.

Findings

Robust evidence was found that unlike domestic institutional investors, which do not influence the value of excess cash holdings, foreign institutional investors positively affect the contribution of excess cash holdings to firm value. The positive effect on excess cash holdings' value is mainly driven by foreign institutions domiciled in countries with strong governance and high investor protection. Moreover, this effect is stronger in firms that are less likely to have financial constraints.

Originality/value

This study provides novel evidence on the effect of institutional investors on the value of excess cash holdings in an emerging market like Pakistan. It also adds to the literature by revealing that the effect of different groups of institutional investors on the value of excess cash holdings is not homogenous.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 25 October 2021

Mohammad Tariqul Islam Khan, Siow-Hooi Tan, Lee-Lee Chong and Gerald Guan Gan Goh

This study examines how the importance of external investment environment factors affects stock market perception, and how stock market perception affects stock…

Abstract

Purpose

This study examines how the importance of external investment environment factors affects stock market perception, and how stock market perception affects stock investments after stock market crash witnessed by individual investors in one of the emerging stock markets.

Design/methodology/approach

A cross-sectional survey was administrated among 223 individual investors who experienced stock market crash in 2010–2011 in Bangladesh, and the proposed model was tested by the partial least squares-structural equation modeling PLS-SEM model.

Findings

Findings show that the importance of Bangladesh's stock market performance, government policy, economic issues and neighboring country's stock market performance have effects on investors' stock market perception. This perception, in turn, decreases monthly stock trading and short-term investment horizon. The findings further show the mediating effect of stock market perception.

Practical implications

Investors need to carefully consider the external investment environment when they form their stock market perception, as this perception drives stock investments. Analogously, regulators should ensure releasing timely and updated statistics on external investment factors.

Originality/value

Addressing those investors who encountered stock market crash, a set of external investment environment issues, stock market perception and stock investments are new in the literature.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

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Article
Publication date: 24 October 2021

Maqsood Ahmad

The aim of this paper is to systematically review the literature published in recognized journals focused on recognition-based heuristics and their effect on investment…

Abstract

Purpose

The aim of this paper is to systematically review the literature published in recognized journals focused on recognition-based heuristics and their effect on investment management activities and to ascertain some substantial gaps related to them.

Design/methodology/approach

For doing research synthesis, systematic literature review approach was applied considering research studies published within the time period, i.e. 1980–2020. This study attempted to accomplish a critical review of 59 studies out of 118 studies identified, which were published in reputable journals to synthesize the existing literature in the behavioural finance domain-related explicitly to recognition-based heuristics and their effect on investment management activities.

Findings

The survey and analysis suggest investors consistently rely on the recognition-based heuristic-driven biases when trading stocks, resulting in irrational decisions, and an investment strategy constructed by implementing the recognition-based heuristics, would not result in better returns to investors on a consistent basis. Institutional investors are less likely to be affected by these name-based behavioural biases in comparison to individual investors. However, under the context of ecological rationality, recognition-based heuristics work better and sometimes dominate the classical methods. The research scholars from the behavioural finance community have highlighted that recognition-based heuristics and their impact on investment management activities are high profile areas, needed to be explored further in the field of behavioural finance. The study of recognition-based heuristic-driven biases has been found to be insufficient in the context of emerging economies like Pakistan.

Practical implications

The skilful understanding and knowledge of the recognition-based heuristic-driven biases will help the investors, financial institutions and policy-makers to overcome the adverse effect of these behavioural biases in the stock market. This article provides a detailed explanation of recognition-based heuristic-driven biases and their influence on investment management activities which could be very useful for finance practitioners’ such as investor who plays at the stock exchange, a portfolio manager, a financial strategist/advisor in an investment firm, a financial planner, an investment banker, a trader/ broker at the stock exchange or a financial analyst. But most importantly, the term also includes all those persons who manage corporate entities and are responsible for making its financial management strategies.

Originality/value

Currently, no recent study exists, which reviews and evaluates the empirical research on recognition-based heuristic-driven biases displayed by investors. The current study is original in discussing the role of recognition-based heuristic-driven biases in investment management activities by means of research synthesis. This paper is useful to researchers, academicians, and those working in the area of behavioural finance in understanding the role that recognition-based heuristics plays in investment management activities.

Details

Qualitative Research in Financial Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1755-4179

Keywords

1 – 10 of over 48000