Investor sentiment, noise trading, and investor trading behaviour: evidence from the South Korean stock market

Ma, Min 2026. Investor sentiment, noise trading, and investor trading behaviour: evidence from the South Korean stock market. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

This thesis examines how investor heterogeneity shapes sentiment-related demand, noise-like trading, and return-signal responses in the South Korean equity market. Using investor-classified stock-level trading data from the Korea Exchange over 2012– 2023, the thesis compares the trading flows of individual, institutional, and foreign investors within the same market and across related empirical settings. The central question is whether behavioural-finance objects that are often measured at the aggregate level can be better understood when they are decomposed by investor type, demand channel, and trading horizon. The thesis consists of three empirical chapters. The first empirical chapter examines whether sentiment-related proxies in Korea capture a single investor-demand foundation or separate investor-specific demand configurations. It first evaluates candidate proxies according to their return-spread relevance and investor-demand content before constructing channel-specific sentiment indices. The evidence indicates that the Korean proxy pool does not map into one unrestricted composite sentiment factor. Instead, the retained proxies separate into two demand configurations. Sentiment 1, based on breadth and technical market-condition proxies, is associated with a foreign-investor-dominant risk-on demand configuration. Sentiment 2, based on turnover, credit-financing, and retail buy-side participation proxies, is associated with an individual-investor-dominant speculative participation configuration. The second empirical chapter studies whether the trading flows of individual, institutional, and foreign investors display different noise-like pricing and process profiles. Rather than assigning the noise-trader label to any investor group in advance, the chapter uses a comparative ex post design based on subsequent-return alignment, flow-sorted ex post performance, and process diagnostics. The results show that individual-investor trading is closest to a noise-like pricing profile, while foreigninvestor flows show stronger positive subsequent-return alignment and institutional flows are more intermediate and horizon-dependent. 4 The third empirical chapter examines investor responses to stock-level and market-level return signals across daily, weekly, monthly, and quarterly frequencies. The evidence shows that investor trading cannot be described by a single momentum or contrarian rule. Responses differ across investor groups, signal levels, stock environments, and trading horizons. Overall, the thesis shows that aggregate measures can conceal investor-specific demand processes. Sentiment-related demand, noise-like trading, and return-based trading behaviour are not homogeneous market-wide objects in the Korean data. The findings support a more disaggregated interpretation of behavioural-finance evidence and suggest that investor-classified trading data can improve the measurement, interpretation, and monitoring of demand shocks in equity markets.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Schools > Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords:	1. Investor Sentiment 2. Noise Trading 3. Trading Behaviour 4. South Korean Stock Market
Date of First Compliant Deposit:	9 September 2026
Last Modified:	09 Sep 2026 08:10
URI:	https://orca.cardiff.ac.uk/id/eprint/189414

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