Investor type effect to volatility-volume relationship: SET50 index futures

Abstract

This study delves into the complex interplay between various types of traders and the resulting effects on the volatility-volume relationship in Thailand's SET50 Index Futures market. It categorizes traders into institutional, retail, and foreign investors, examining their distinct trading behaviors and access to information. The research aims to discern how these diverse investor profiles impact market volatility, particularly in the context of an emerging financial market like Thailand.

Utilizing a range of econometric techniques, the study categorizes trading activity into expected and unexpected variables. The findings reveal a positive correlation between retail investors' expected trading volume and market volatility, aligning with the notion that less informed traders, lacking access to private or semi-fundamental information, exhibit a greater dispersion of beliefs. Surprisingly, retail investors display more caution in unexpected market scenarios, reducing their trading activity, which contrasts with their general speculative behavior. Conversely, institutional and foreign investors, often considered more informed, do not show a statistically significant impact on market volatility. Additionally, the study finds that changes in open interest do not significantly influence the volatility of the SET50 Index Futures, suggesting a need for further exploration into this aspect.

The research contributes valuable insights for regulatory bodies, investment managers, and market strategists, especially in formulating policies and strategies for emerging markets. Understanding the differentiated roles of investor types is crucial for market stabilization efforts and aligning investment approaches with market behaviors.