How do Individual, Institutional, and Foreign Investors Win and Lose in Equity Trades? Evidence from Japan


  • *We received useful suggestions from participants of The 5th Behavioral Economics Workshop co-sponsored by Aoyama Gakuin University and Osaka University Center for Research in Behavioral Economics. For earlier versions of the paper, we thank Junji Kawahara, Srinivasan Sankaraguruswamy, Yasuhiko Tanigawa, participants of the NFA/APFA/FMA Annual Meetings, and seminar participants at the Hong Kong University of Science and Technology, Keio University, Musashi University, Nanyang Technological University, National University of Singapore, and The University of Hong Kong for helpful comments. We appreciate the efforts of Masato Hirota and Hirotaka Kawai of the Tokyo Stock Exchange in answering our questions on institutional details. We appreciate Alisa Larson for excellent editorial assistance. Yamada acknowledges the support during stay at the Graduate School of International Corporate Strategy of Hitotsubashi University and financial support from the National University of Singapore Academic Research Grant R-315-000-047-112. The contents expressed in the paper do not reflect opinions of the institutions with which authors are affiliated.

Takeshi Yamada
NUS Business School


We investigate the gains and losses from equity trades of individual investors, various institutional investors, and foreign investors in the Tokyo Stock Exchange. We develop a trade-weighted performance measure and examine the impact of trading intervals, price spreads, and market timing on performance. We find that different investor types gain or lose from different sources. For example, we discover that individual investors have poor market timing ability but potentially gain during short-run trading intervals as their average sell price is consistently higher than the average purchase price. In contrast, we find that foreign investors consistently generate gains from trade due to good market timing, although their average sell price is lower than the average purchase price. Also, we find that foreign investors extract significant portion of their gains by trading against Japanese institutional investors when Japanese investors trade before their fiscal-year end.