Turnover Premium, Foreign Institutional Ownership, and Time-Varying Risk Premium in Taiwan Equity Markets
DOI:
https://doi.org/10.6000/1929-7092.2015.04.02Keywords:
Turnover Premium, Foreign Institutional Investors, Time-Varying Risk Premium, Overconfidence.Abstract
The low turnover premium found in U.S. equity markets is also found in Taiwan market, unlike the mixed evidence for other stylized effects such as size, book-to-market ratio and momentum. Consistent with investor overconfidence hypothesis proposed by Odean (1998, 1999), the percentage of foreign institutional shareholdings in a stock is found to vary inversely with turnover premium. This inverse relation is robust to the influence of other forces that may interact with turnover rate, such as market capitalization, book-to-market ratio and 6-month past returns, respectively. Time-varying risk premium, particularly in low turnover-low foreign institutional shareholdings percentage portfolio, provides partial explanation for the phenomenon, but the inverse relation persists after risk adjustment by models such as unconditional CAPM, Fama-French three factor model and conditional CAPM.References
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http://dx.doi.org/10.1093/rfs/hhn046
Barber, Brad M., and Terrance Odean. 2000. “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.” Journal of Finance 55(2):773-806.
http://dx.doi.org/10.1111/0022-1082.00226
Barber, Brad M., and Terrance Odean. 2008. “All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors.” Review of Financial Studies 21(2):785-818.
http://dx.doi.org/10.1093/rfs/hhm079
Chordia, Tarun, Richard Roll, and Avanidhar Subrahmanyam. 2011. “Recent Trends in Trading Activity and Market Quality.” Journal of Financial Economics 101(2):243-263.
http://dx.doi.org/10.1016/j.jfineco.2011.03.008
Chou, Pin-Huang, Tsung-Yu Huang, and Hung-Jeh Yang. 2013. “Arbitrage Risk and the Turnover Anomaly.” Journal of Banking and Finance 37(11):4172-4182.
http://dx.doi.org/10.1016/j.jbankfin.2013.07.011
Chuang, Wen-I, and Rauli Susmel. 2011. “Who Is the More Overconfident Trader? Individual vs. Institutional Investors.” Journal of Banking and Finance 35(7):1626-1644.
http://dx.doi.org/10.1016/j.jbankfin.2010.11.013
Datar, Vinay T., Narayan Y. Naik, and Robert Radcliffe. 1998. “Liquidity and Stock Returns: An Alternative Test.” Journal of Financial Markets 1(2):203-219.
http://dx.doi.org/10.1016/S1386-4181(97)00004-9
Ferson, Wayne E. 1989. “Changes in Expected Security Returns, Risk, and the Level of Interest Rates.” The Journal of Finance 44(5):1191-1217.
http://dx.doi.org/10.1111/j.1540-6261.1989.tb02650.x
Ferson, Wayne E., and Campbell R. Harvey. 1991. “The Variation of Economic Risk Premiums.” Journal of Political Economy 99(2):385-415.
http://dx.doi.org/10.1086/261755
Ferson, Wayne E., and Campbell R. Harvey. 1999. “Conditioning Variables and the Cross Section of Stock Returns.” The Journal of Finance 54(4):1325-1360.
http://dx.doi.org/10.1111/0022-1082.00148
Gervais, Simon, and Terrance Odean. 2001. “Learning to Be Overconfident.” Review of Financial Studies 14(1):1-27.
http://dx.doi.org/10.1093/rfs/14.1.1
He, Wen, and Jiangfeng Shen. 2014. “Do Foreign Investors Improve Informational Efficiency of Stock Prices? Evidence from Japan.” Pacific-Basin Finance Journal 27(C):32-48.
http://dx.doi.org/10.1016/j.pacfin.2014.01.005
Hsieh, Shu-Fan. 2013. “Individual and Institutional Herding and the Impact on Stock Returns: Evidence from Taiwan Stock Market.” International Review of Financial Analysis 29(C):175-188.
http://dx.doi.org/10.1016/j.irfa.2013.01.003
Kang, Jangkoo, Tong Suk Kim, Changjun Lee, and Byoung-Kyu Min. 2011. “Macroeconomic Risk and the Cross Section of Stock Returns.” Journal of Banking and Finance 35(12):3158-3173.
http://dx.doi.org/10.1016/j.jbankfin.2011.04.012
Lee, M.C. Charles, and Bhaskaran Swaminathan. 2000. “Price Momentum and Trading Volume.” Journal of Finance 55(5):2017-2069.
http://dx.doi.org/10.1111/0022-1082.00280
Lettau, Martin, and Sydney Ludvigson. 2001. “Resurrecting the (C)CAPM:A Cross-Sectional Test When Risk Premium Are Time-Varying.” Journal of Political Economy 109(6):1238-1287.
http://dx.doi.org/10.1086/323282
Odean, Terrance. 1998. “Volume, Volatility, Price, and Profit When All Traders Are Above Average.” Journal of Finance 53(6):1887-1934.
http://dx.doi.org/10.1111/0022-1082.00078
Odean, Terrance. 1999. “Do Investors Trade Too Much?” American Economic Review 89(5):1279-98.
http://dx.doi.org/10.1257/aer.89.5.1279
Schuppli, Michael, and Martin T. Bohl. 2010. “Do foreign Institutional Investors Destablize China’s A-share Markets?” Journal of International Financial Markets, Institutions and Money 20(1):36-50.
http://dx.doi.org/10.1016/j.intfin.2009.10.004
Shiu, Yih-Wen, Chun I. Lee and Kimberly C. Gleason. 2014. “Institutional Shareholdings and the January Effects in Taiwan.” Journal of Multinational Financial Management 27(C):49-66.
http://dx.doi.org/10.1016/j.mulfin.2014.05.005
Statman, Meir, Steven Thorley and Keith Vorkink. 2006. “Investor Overconfidence and Trading Volume.” Review of Financial Studies 19(4):1531-1565.
http://dx.doi.org/10.1093/rfs/hhj032
Yang, Jack J.W. 2002. “The Information Spillover between Stock Returns and Institutional Investors’ Trading Behavior in Taiwan.” International Review of Financial Analysis 11(4):533-547.
http://dx.doi.org/10.1016/S1057-5219(02)00069-8
Yates, J. Frank, Ju-Whei Lee, and Hiromi Shinotsuka. 1996. “Beliefs About Overconfidence, Including Its Cross-national Variation.” Organizational Behavior and Human Decision Processes 65(2):138-147.
http://dx.doi.org/10.1006/obhd.1996.0012
Yates, J. Frank, Ju-Whei Lee, and Julie GG. Bush. 1997. “General Knowledge Overconfidence: Cross-national Variations, Response Style, and “Reality”.” Organizational Behavior and Human Decision Processes 70(2):87-94.
http://dx.doi.org/10.1006/obhd.1997.2696
Yates, J. Frank, Ju-Whei Lee, Hiromi Shinotsuka, Andrea L Patalano, and Winston R Sieck. 1998. “Cross-Cultural Variations in Probability Judgment Accuracy: Beyond General Knowledge Overconfidence?” Organizational Behavior and Human Decision Processes 74(2):89-117.
http://dx.doi.org/10.1006/obhd.1998.2771
http://dx.doi.org/10.1093/rfs/hhn046
Barber, Brad M., and Terrance Odean. 2000. “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.” Journal of Finance 55(2):773-806.
http://dx.doi.org/10.1111/0022-1082.00226
Barber, Brad M., and Terrance Odean. 2008. “All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors.” Review of Financial Studies 21(2):785-818.
http://dx.doi.org/10.1093/rfs/hhm079
Chordia, Tarun, Richard Roll, and Avanidhar Subrahmanyam. 2011. “Recent Trends in Trading Activity and Market Quality.” Journal of Financial Economics 101(2):243-263.
http://dx.doi.org/10.1016/j.jfineco.2011.03.008
Chou, Pin-Huang, Tsung-Yu Huang, and Hung-Jeh Yang. 2013. “Arbitrage Risk and the Turnover Anomaly.” Journal of Banking and Finance 37(11):4172-4182.
http://dx.doi.org/10.1016/j.jbankfin.2013.07.011
Chuang, Wen-I, and Rauli Susmel. 2011. “Who Is the More Overconfident Trader? Individual vs. Institutional Investors.” Journal of Banking and Finance 35(7):1626-1644.
http://dx.doi.org/10.1016/j.jbankfin.2010.11.013
Datar, Vinay T., Narayan Y. Naik, and Robert Radcliffe. 1998. “Liquidity and Stock Returns: An Alternative Test.” Journal of Financial Markets 1(2):203-219.
http://dx.doi.org/10.1016/S1386-4181(97)00004-9
Ferson, Wayne E. 1989. “Changes in Expected Security Returns, Risk, and the Level of Interest Rates.” The Journal of Finance 44(5):1191-1217.
http://dx.doi.org/10.1111/j.1540-6261.1989.tb02650.x
Ferson, Wayne E., and Campbell R. Harvey. 1991. “The Variation of Economic Risk Premiums.” Journal of Political Economy 99(2):385-415.
http://dx.doi.org/10.1086/261755
Ferson, Wayne E., and Campbell R. Harvey. 1999. “Conditioning Variables and the Cross Section of Stock Returns.” The Journal of Finance 54(4):1325-1360.
http://dx.doi.org/10.1111/0022-1082.00148
Gervais, Simon, and Terrance Odean. 2001. “Learning to Be Overconfident.” Review of Financial Studies 14(1):1-27.
http://dx.doi.org/10.1093/rfs/14.1.1
He, Wen, and Jiangfeng Shen. 2014. “Do Foreign Investors Improve Informational Efficiency of Stock Prices? Evidence from Japan.” Pacific-Basin Finance Journal 27(C):32-48.
http://dx.doi.org/10.1016/j.pacfin.2014.01.005
Hsieh, Shu-Fan. 2013. “Individual and Institutional Herding and the Impact on Stock Returns: Evidence from Taiwan Stock Market.” International Review of Financial Analysis 29(C):175-188.
http://dx.doi.org/10.1016/j.irfa.2013.01.003
Kang, Jangkoo, Tong Suk Kim, Changjun Lee, and Byoung-Kyu Min. 2011. “Macroeconomic Risk and the Cross Section of Stock Returns.” Journal of Banking and Finance 35(12):3158-3173.
http://dx.doi.org/10.1016/j.jbankfin.2011.04.012
Lee, M.C. Charles, and Bhaskaran Swaminathan. 2000. “Price Momentum and Trading Volume.” Journal of Finance 55(5):2017-2069.
http://dx.doi.org/10.1111/0022-1082.00280
Lettau, Martin, and Sydney Ludvigson. 2001. “Resurrecting the (C)CAPM:A Cross-Sectional Test When Risk Premium Are Time-Varying.” Journal of Political Economy 109(6):1238-1287.
http://dx.doi.org/10.1086/323282
Odean, Terrance. 1998. “Volume, Volatility, Price, and Profit When All Traders Are Above Average.” Journal of Finance 53(6):1887-1934.
http://dx.doi.org/10.1111/0022-1082.00078
Odean, Terrance. 1999. “Do Investors Trade Too Much?” American Economic Review 89(5):1279-98.
http://dx.doi.org/10.1257/aer.89.5.1279
Schuppli, Michael, and Martin T. Bohl. 2010. “Do foreign Institutional Investors Destablize China’s A-share Markets?” Journal of International Financial Markets, Institutions and Money 20(1):36-50.
http://dx.doi.org/10.1016/j.intfin.2009.10.004
Shiu, Yih-Wen, Chun I. Lee and Kimberly C. Gleason. 2014. “Institutional Shareholdings and the January Effects in Taiwan.” Journal of Multinational Financial Management 27(C):49-66.
http://dx.doi.org/10.1016/j.mulfin.2014.05.005
Statman, Meir, Steven Thorley and Keith Vorkink. 2006. “Investor Overconfidence and Trading Volume.” Review of Financial Studies 19(4):1531-1565.
http://dx.doi.org/10.1093/rfs/hhj032
Yang, Jack J.W. 2002. “The Information Spillover between Stock Returns and Institutional Investors’ Trading Behavior in Taiwan.” International Review of Financial Analysis 11(4):533-547.
http://dx.doi.org/10.1016/S1057-5219(02)00069-8
Yates, J. Frank, Ju-Whei Lee, and Hiromi Shinotsuka. 1996. “Beliefs About Overconfidence, Including Its Cross-national Variation.” Organizational Behavior and Human Decision Processes 65(2):138-147.
http://dx.doi.org/10.1006/obhd.1996.0012
Yates, J. Frank, Ju-Whei Lee, and Julie GG. Bush. 1997. “General Knowledge Overconfidence: Cross-national Variations, Response Style, and “Reality”.” Organizational Behavior and Human Decision Processes 70(2):87-94.
http://dx.doi.org/10.1006/obhd.1997.2696
Yates, J. Frank, Ju-Whei Lee, Hiromi Shinotsuka, Andrea L Patalano, and Winston R Sieck. 1998. “Cross-Cultural Variations in Probability Judgment Accuracy: Beyond General Knowledge Overconfidence?” Organizational Behavior and Human Decision Processes 74(2):89-117.
http://dx.doi.org/10.1006/obhd.1998.2771
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Published
2015-02-24
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Chen, Y.-J., & Lee, J.-S. (2015). Turnover Premium, Foreign Institutional Ownership, and Time-Varying Risk Premium in Taiwan Equity Markets. Journal of Reviews on Global Economics, 4, 8–20. https://doi.org/10.6000/1929-7092.2015.04.02
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