TY - CONF

T1 - Retail investor logics or what constitutes good practice in emerging equity markets?

T2 - European Group for Organisational Studies Conference 2017

AU - Tarim, Emre

AU - Chen , Yu-Hsiang

N1 - Conference code: 2017

PY - 2017/7/7

Y1 - 2017/7/7

N2 - Financial and behavioural economics have theorized and studied financial markets as aggregates of individual actors who process information either rationally or irrationally, which results in informationally efficient or anomalous markets. In both approaches, which have been debating whether developed markets are efficient, there is hardly any reference to what institutional approaches generally take as starting points of investigation- namely, culture and its constituting resources, meanings, and practices. Peculiarly, institutional approaches and actor-network-theory inspired social studies of finance (SSF) have pointed to the adaptation of scientific valuation and portfolio management theories by professional investors and markets in the developed world since the late 1970s when the market efficiency debate started. This adaptation has been accompanied by an increasingly predominant presence of professional investors in share ownership and trading activity in developed equity markets at the expense of retail investors. A similar predominance and the prevalence of what one can call a professional investor logic has yet to happen across the emerging markets. In individual markets such as Brazil, Thailand, Turkey, and Taiwan, retail investing can be almost at par or even more dominant than professional investing. Such retail investor predominance matters for market efficiency. This is because, unlike professional investors, retail investors are associated with practices of cognition and valuation that are generally labelled noise trading. Simply put, noise refers to information not relevant to intrinsic/cash flow value of a company. Using such information runs counter to the state of the art in financial theorisation and practice. Given these differences across developed and emerging markets and among professional and retail investors, we address the following themes around institutional logics and market efficiency. What are the symbolic and practice characteristics of the retail investor logic in emerging markets that have significant retail investor presence? What are the specific market anomalies and inefficiencies that can be associated with the retail investor logic? How do these patterns of behaviour and their market manifestations become “institutionalized rationality” or “good” practice, and survive despite financial economics’ assumption to the contrary- namely, irrational actions and market inefficiencies are driven out by informed investors?

AB - Financial and behavioural economics have theorized and studied financial markets as aggregates of individual actors who process information either rationally or irrationally, which results in informationally efficient or anomalous markets. In both approaches, which have been debating whether developed markets are efficient, there is hardly any reference to what institutional approaches generally take as starting points of investigation- namely, culture and its constituting resources, meanings, and practices. Peculiarly, institutional approaches and actor-network-theory inspired social studies of finance (SSF) have pointed to the adaptation of scientific valuation and portfolio management theories by professional investors and markets in the developed world since the late 1970s when the market efficiency debate started. This adaptation has been accompanied by an increasingly predominant presence of professional investors in share ownership and trading activity in developed equity markets at the expense of retail investors. A similar predominance and the prevalence of what one can call a professional investor logic has yet to happen across the emerging markets. In individual markets such as Brazil, Thailand, Turkey, and Taiwan, retail investing can be almost at par or even more dominant than professional investing. Such retail investor predominance matters for market efficiency. This is because, unlike professional investors, retail investors are associated with practices of cognition and valuation that are generally labelled noise trading. Simply put, noise refers to information not relevant to intrinsic/cash flow value of a company. Using such information runs counter to the state of the art in financial theorisation and practice. Given these differences across developed and emerging markets and among professional and retail investors, we address the following themes around institutional logics and market efficiency. What are the symbolic and practice characteristics of the retail investor logic in emerging markets that have significant retail investor presence? What are the specific market anomalies and inefficiencies that can be associated with the retail investor logic? How do these patterns of behaviour and their market manifestations become “institutionalized rationality” or “good” practice, and survive despite financial economics’ assumption to the contrary- namely, irrational actions and market inefficiencies are driven out by informed investors?

KW - Institutional logics

KW - Retail Investors

KW - Noise Trading

KW - Taiwan

KW - Turkey

M3 - Conference paper

Y2 - 5 July 2017 through 8 July 2017

ER -