Investor Clientele and Intraday Patterns in the Cross-Section of Stock Returns

Abstract

This paper examines the existence of a well documented Heston, Korajczyk, and Sadka (2010) (hereafter HKS 2010) intraday momentum pattern in the cross section of stock returns for three previously un-examined markets outside the US - UK, China and Brazil. While the stocks in UK and Brazil exhibit the pattern, the evidence from China is lacklustre. We utilize the presence of dual listed A-shares (dominated by domestic retail investors) and their B- and H-share counterparts (dominated by foreign institutional investors) of the same terms which provide a natural experiment setting to analyse the impact of investor clientele on the proliferation of HKS pattern. Our findings indicate that pattern is much weaker in A-shares (owned mostly by domestic retail investors) as compared to their B- and H- share counterparts. As a further robustness test we examine the impact of an exogenous shock that leads to an increase in institutional ownership namely the partial index inclusion of A-shares in the Morgan Stanley Capital International (MSCI) Emerging Markets Index. Our findings indicate an increasing level of the manifestation of the intraday pattern upon inclusion of A-shares to the MSCI.