This master thesis examines the role of foreign investors in the Istanbul Stock Exchange in three dimensions: differences among sectors and subsectors in terms of foreign trading activity, the effect of November 2000 &amp / #8211 / February 2001 crisis on returns and foreign trading activity, and the relationship between return and foreign trading activity. Data used in this thesis covers 72 months between January 1997 and December 2002. Significant differences among sectors and subsectors in terms of foreign trading activity is found. On the other hand, there is no statistically significant difference in the mean values and variances of returns on the overall market, national sector and most subsector indices before and after the crisis period of November 2000 &amp / #8211 / February 2001. However, foreign trading activity has decreased in interest-sensitive and cyclical industries and increased in defensive industries during the recession that follows the crisis. The relationship between return and net foreign trading volume relative to the total trading volume is statistically significant for the overall market and national sectors. Furthermore, we find that the effect of net foreign trading volume relative to the total trading volume on return is larger for stocks included in the ISE-30 index. The mean returns on stocks associated with negative NFV and positive NFV are statistically significantly different from each other. We further find that it is more likely to observe positive (negative) return on a stock when net foreign trading volume in that stock is positive (negative).

Abstract This thesis investigates a set of equity market phenomena associated with investors' trading activity, using a comprehensive Finnish Central Securities Depository (FCSD) database that records practically all trades by Finnish investors. This database enables us to classify a large number of heterogeneous investors using both economic and institutional characteristics. The first essay classifies investors by trading activity. It analyzes trading styles of active and passive investors during the boom in technology stocks 1997–2000. We find that the herding tendency of active investors grew monotonically, year by year. Particularly large active investors used momentum and growth strategies. Moreover, buy pressures of active investors were positively related to contemporaneous daily returns. Passive investors, on the other hand, herd very strongly and their trading exhibited a contrarian style throughout the sample period. The second essay focuses on the relation between day trading of individual investors and intraday stock price volatility. I find a strong positive relation between the individual investors' day trades and volatility for actively day traded stocks. This finding suggests that day trading tends to increase volatility and/or day traders tend to become more active on the days of high volatility. The third essay tests the theoretical proposition of Amihud and Mendelson (1986) that investors hold assets with higher bid-ask spreads for longer periods. We measure holding periods of individual investors directly and find that they are positively related to spreads. The models control for a variety of other stock characteristics (e.g. value vs. growth orientation) and investors' attributes (e.g. gender) affecting holding periods. The fourth essay studies how both individual and institutional investors with different levels of capital gains and losses react to earnings announcements. I find that both sign and magnitude of capital gains affect individual investors' abnormal trading volumes. Individual investors are less prone to sell when they are carrying loses rather than gains. Furthermore, they react less to earnings announcements when capital gains or losses are large (over 20%). Taken together these findings provide support for prospect theory. Institutional investors appear to be less affected by psychological factors underlying prospect theory.

L'objectif principal de ma thèse est d'évaluer la réaction du marché à la publication de différentes annonces de notation de crédit. Précisément, la thèse étudie l'impact des annonces sur la volatilité des prix et sur plusieurs indicateurs d'activité et de liquidité sur le marché obligataire et de CDS. Un chapitre examine également si et comment le prix des actions réagit aux retraits de notation de crédit. / The main aim of my thesis is to evaluate the market reaction to credit rating announcements. Precisely, the thesis studies the impact of the release of such announcements on the price volatility, liquidity and several trading activity measures in the bond market and CDS. A chapter also examines whether and how the issuer stock price reacts to the withdrawal of its credit rating.