Asia-Pacific Financial Markets

, Volume 26, Issue 4, pp 409–427 | Cite as

Modeling Trading Behavior in the Japanese Stock Market During QE Tapering and Post-QE Exit

  • Wee-Yeap LauEmail author
  • Tien-Ming Yip


This study investigates the trading dynamics between institutional, foreign and retail investors during QE and post-QE exit in the Japanese stock market. A theoretical framework is developed to classify all transactions into trading, short-selling or information flow. Using weekly data from 2014 to 2015, our results show: Firstly, during QE tapering, there is short-selling by foreign retail investors. There is also information flow from Foreign Retail Sales to Local Institutional Sales as well as Foreign Retail Purchases to Local Retail Purchases. Net buyers are local and foreign institutional investors; Secondly, in post-QE exit, there is short-selling by foreign institutional investors. Moreover, Foreign Institutional Purchases is found to precede Local Retail Purchases. Net sellers are local and foreign retail investors. Hence, it can be concluded that foreign investors are dominant player during QE tapering and post-QE period. As a policy suggestion, both local and foreign investors should be provided with more incentive to trade in the local bourse. The regulator should also ensure timely disclosure of material public information by listed firms to ensure a level playing field for all market participants.


Quantitative easing Foreign investors Short-selling Market microstructure Japan 

JEL Classification

G12 G14 G23 



  1. Agudelo, D. A. (2010). Friend or Foe? Foreign investors and the liquidity of six Asian markets. Asia-Pacific Journal of Financial Studies,39(3), 261–300.CrossRefGoogle Scholar
  2. Choe, H., Kho, B.-C., & Stulz, R. M. (2001). Do domestic investors have more valuable information about individual stocks than foreign investors? Working Paper No. 8073. NBER.Google Scholar
  3. Choe, H., Kho, B.-C., & Stulz, R. M. (2005). Do domestic investors have an edge? The trading experience of foreign investors in Korea. Review of Financial Studies,18(3), 795–829.CrossRefGoogle Scholar
  4. Fensom, A. (2016). Why reversing Japan’s risk aversion is going to be a long process. Retrieved from Accessed 30 Sept 2018.
  5. Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica,37(3), 424–438.CrossRefGoogle Scholar
  6. Hallam, D., & Zanoli, R. (1993). Error-correction models and agricultural supply response. European Review of Agricultural Economics,20(2), 155–166.CrossRefGoogle Scholar
  7. Harris, L. (2003). Trading and exchanges: Market microstructure for practitioners. New York: Oxford University Press.Google Scholar
  8. Huang, R., & Shiu, C.-Y. (2005). Overseas monitors in emerging financial markets: Evidence from foreign ownership in Taiwan. Working Paper. National Central University at Taiwan, Taipei, Taiwan.Google Scholar
  9. Japan Exchange Group. (2018). Trading by type of investors. Retrieved from Accessed 30 Sept 2018.
  10. Kim, J.-B., & Yi, C. H. (2015). Foreign versus domestic institutional investors in emerging markets: Who contributes more to firm-specific information flow? China Journal of Accounting Research,8(1), 1–23.CrossRefGoogle Scholar
  11. Kwiatkowski, D., Philips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics,54(1–3), 159–178.CrossRefGoogle Scholar
  12. Liew, P. X., Lim, K. P., & Goh, K. L. (2016). Aggregate liquidity for the Malaysian stock market: New indicators and time series properties. International Journal of Economics and Management,10(2), 297–319.Google Scholar
  13. Ming, C. (2018). Japan’s Nikkei stock index falls more than 1,000 points. Retrieved from
  14. Obben, J. (1998). The demand for money in Brunei. Asian Economic Journal,12(2), 109–121.CrossRefGoogle Scholar
  15. Philips, P. C. B., & Perron, P. (1988). Testing for unit roots in time series regression. Biometrika,75(2), 335–346.CrossRefGoogle Scholar
  16. Seasholes, M. (2000). Smart foreign traders in emerging markets. Unpublished Working Paper. Harvard Business School, Cambridge, MA.Google Scholar

Copyright information

© Springer Japan KK, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Faculty of Economics and AdministrationUniversity of MalayaKuala LumpurMalaysia

Personalised recommendations