What Drives Stock Market Development? Evidence from Investor Type
What Drives Stock Market Development? Evidence from Investor Type

Summary/Abstract: Factors that found driving stock market development in terms of liquidity measuring by aggregate turnover ratio do not necessarily induce all investor types to trade more. Rather than focusing on what drives aggregate trading activities, we focus on how investor types differ in their effects on stock market development. By dividing factors affect trading into macroeconomics, stock market fundamental, and other factors, we find different investor types respond differently to these factors. We find individual investors trade significantly more when stock market return and volatility increase comparing to foreign and institutional investors. When focusing on what factors influences different investor types net buy position, our results confirm that their trading patterns are different and not influenced by exact the same factors. In general, we find individual investor trading direction focuses more on stock market fundamental factors than macroeconomic factors comparing to the other types of investors. Therefore, understanding what influences different investor type trading activities does matter in understanding what drives stock market development.

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