Is the Relation Between Institutional Investor Trading and Stock Volatility Negative?

Wei Li and Steven Shuye Wang [2010. Daily institutional trades and stock price volatility in a retail investor dominated emerging market. Journal of Financial Markets 13, 448-474] documents a significantly negative relation between stock volatility and institutional net trading in Shanghai. Stock Exchange. We reexamine the relation between volatility and institutional trading in Taiwan Stock Exchange. Inconsistent with previous negative relation, our empirical analysis suggests a zero relation between institutional investor net trading and daily stock volatility although Taiwan and Shanghai are both retail investor dominated emerging markets. Although institutional buying or selling is negatively correlated with volatility for all stocks, this is not true except the largest stocks, indicating that the negative association between institutional buying or selling and volatility lies only in the largest stocks.