Market sentiment, marketable transactions, and returns

Using unique data from the Taiwanese stock market, I explore the transaction aggressiveness of mutual funds, foreign institutions, dealers and retail investors during periods of different market sentiment. Retail investors' marketable transaction ratios are positively related to stocks' systematic risk. In contrast, mutual funds and foreign institutions' marketable transaction ratios are negatively related. Although the marketable transaction ratios of all the four types of investors are higher when market sentiment is more fearful, mutual funds' trades on thesellside can mitigate the marketable transaction ratios during market panics. Marketable transaction ratios of the four types of investors have significant impacts on stock prices, both directly and indirectly through the influence on order imbalances.