Informed trading in borsa İstanbul
Author
Tiniç, Murat
Advisor
Tanyeri, Ayşe Başak
Date
2019-06Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
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Abstract
This thesis investigates how information asymmetry affects asset prices in Borsa
İstanbul. In the first chapter, we introduce the R package InfoTrad that estimates
the probability of informed trading. Next, we examine the relationship between information
asymmetry and stock returns in Borsa İstanbul. Firm-level cross-sectional
regressions indicate an economically insignificant relationship between PIN and future
returns. Moreover, univariate and multivariate portfolio analyses show that
portfolios of stocks with high levels of informed trading do not realize significant
return premiums. Consequently, our results, suggest that information asymmetry is
a firm-specific risk and it can be eliminated with portfolio diversification. Finally,
we compare the informational (dis)advantage of foreign investors trading in Borsa
İstanbul. We first show that an average foreign trade creates buy pressure whereas
an average local trade generates a sell pressure. The permanent impact of foreign
investors over and above local investors is significant only for 24 stocks which correspond
to 7% of our sample. Importantly, we show that the foreign price impact
occurs primarily in a period of political instability which started with the Gezi Park
protests in June 2013. In a panel setting, we also show that adverse selection cost
due to foreign trading significantly increases even when we control for firm-specific
factors along with global and local macroeconomic conditions. Domestic investors
with undiversified portfolios may be more risk-averse during periods of increased turmoil.
This may enable foreign investors to have a better position to take advantage
of potential price misalignments, especially for stocks of commercial banks.