Dissecting retail, institutional, and foreign buy-sell imbalances

Dissecting retail, institutional, and foreign buy-sell imbalances

• Author
• Pedro Piccoli
• Abstract

• Using a unique dataset containing the daily amount traded by retail, domestic institutional and foreigner investors in the spot market of the Brazilian Stock Exchange between 2018 and 2021, I run a battery of analysis related to buy-sell imbalances of these investor’s types. My main results are as follows: a) imbalances of sophisticated investors are autocorrelated, whereas retail imbalances are not; b) retail investors are not liquidity providers for sophisticated investors; c) foreign investors are trend-seekers, whereas individuals are contrarians; d) past returns are especially important with regard to forecasting imbalances of sophisticated investors; and e) retail imbalances can predict future market returns, while sophisticated imbalances cannot. Overall, these results are difficult to reconcile with the notion that retail investors are noise-traders while sophisticated investors are arbitrageurs.

• Keywords
• Market Microstructure, Buy-sell imbalances, Retail investors, Market Efficiency
• Subject Area
• Asset pricing, investments, and Derivatives

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