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Journal of Economic Interaction and Coordination

, Volume 14, Issue 4, pp 859–890 | Cite as

Differences in the effects of seller-initiated versus buyer-initiated crowded trades in stock markets

  • Liyun ZhouEmail author
  • Chunpeng Yang
Regular Article
First Online:
  • 57 Downloads

Abstract

This paper illustrates the differences in the effects of seller-initiated versus buyer-initiated crowded trades in stock markets. First, a one-period multi-investor model is proposed to describe how crowded trades affect stock prices. Further, we theoretically decompose the crowded trades into buyer-initiated crowded trades and seller-initiated crowded trades and, respectively, analyse their effects on stock prices. An empirical study is conducted to examine the theoretical model, obtaining the following results. First, stock prices increase with crowded trades; second, stock prices are positively related to buyer-initiated crowded trades, but negatively related to seller-initiated crowded trades; and third, the effects of crowded trades, buyer-initiated crowded trades and seller-initiated crowded trades on stock prices are stronger for the younger stocks, lower price earnings ratio stocks, lower earnings per share stocks, and lower fixed asset ratio stocks. Collectively, our results can provide new insights into the roles of crowded trades on stock prices.

Keywords

Crowded trades Buyer-initiated crowded trades Seller-initiated crowded trades Stock prices 

JEL Classification

G1 G10 G12 
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Notes

Acknowledgements

We are especially grateful to the editor (Prof. Thomas Lux), the Associate Editor and anonymous referees for constructive comments that have significantly improved the paper. This work was supported by the National Natural Science Foundation of China (71803051), the Natural Science Foundation of Guangdong Province (2018A030310218); the project of Guangdong Planning office of Philosophy and Social Science in 2017 (GD17XLJ04; GD17XGL14), the youth project of Department of Education of Guangdong Province (2017WQNCX014), National Science Foundation of China (71471067; 71720107002), and China Postdoctoral Science Foundation (2019M652913).

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.College of Economics & ManagementSouth China Agricultural UniversityGuangzhouChina
  2. 2.School of Economics and Commerce, Finance and Security CenterSouth China University of TechnologyGuangzhouChina

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