Investment patterns and performance of investor groups in Japan

Abstract Using weekly aggregate investment flow from Japan, we study the investment patterns and performance of foreign investors, individual investors, and five types of institutional investors. Securities firms, banks, and foreign investors perform well over the sample period. Individual investors perform poorly. We also find that foreign investor trading is associated with positive feedback market timing and that this trading earns high returns. Alternatively, individual investors use positive feedback trading in their market timing but earn low returns. Consequently, we document evidence consistent with information-based models (foreign investors) and behavioral-based models (individual investors). It is a particularly new and interesting finding that evidence of both information-based trading and behavioral-based trading occurs in the same market.

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