Individual and institutional trading volume around firm-specific announcements

Abstract

Purpose – The purpose of this paper is to investigate the immediate impact of firm-specific announcements on the trading volume of individual and institutional investors on the Australian Securities Exchange (ASX), during a period when the market becomes fragmented. Design/methodology/approach – This study uses intraday trading volume data in five-minute intervals prior to and after firm-specific announcements to measure individual and institutional abnormal volume. There are 70 such intervals per trading day and 254 trading days in the sample period. The first 10 minutes of trading (from 10.00 to 10.10 a.m.) is excluded to avoid the effect of opening auction and to ensure consistency in the “starting time” for all stocks. The volume transacted during five-minute intervals is aggregated and attributed to individual or institutional investors using Broker IDs. Findings – Institutional investors exhibit abnormal trading volume before and after announcements. However, individual investors indicate abnormal trading volume only after announcements. Consistent with outcomes expected from a dividend washing strategy, abnormal trading volume around dividend announcements is statistically insignificant. Both individual and institutional investors’ buy volumes are higher than sell volumes before and after scheduled and unscheduled announcements. Research limitations/implications – The study is Australian focused, but the results are applicable to other limit order book markets of similar design. Practical implications – The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure. Social implications – The results add to the understanding of individual and institutional investors’ trading behaviour around firm-specific announcements in a securities market with continuous disclosure. Originality/value – These results will help regulators to design markets that are less predatory on individual investors.