Individual investors in South Korea concentrated their buying on stocks that had fallen sharply, but their returns after those purchases mostly trailed the broader market, a report showed. Stocks bought by institutions and foreign investors, by contrast, delivered improving excess returns the longer they were held.
According to a Korea Capital Market Institute report titled "Trading Behavior by Investor Type and Stock Price Movements in the Korean Stock Market," written by senior research fellow Hong Ji-yeon and released on the 21st, individual investors in both the KOSPI and KOSDAQ markets aggressively bought stocks with the steepest declines. The study sorted listed stocks in each market into five groups based on their returns over the preceding 20 trading days as of the end of each month, then compared net buying ratios by investor type.
Institutions, by contrast, net sold the biggest decliners and bought more heavily the stronger a stock had risen, showing a trend-following pattern. Foreign investors showed no consistent pattern in the KOSDAQ market, but on the KOSPI they favored rising stocks as institutions did.
Investment performance diverged clearly. The report selected the top 20% of stocks by net buying ratio for each investor type each month and compared cumulative excess returns against the market index over the following one, three and six months. For individuals, the most heavily bought KOSDAQ stocks posted negative excess returns across all three periods. That means retail investors who pursued a bargain-hunting strategy after a KOSDAQ stock fell sharply earned less than they would have by simply investing in the KOSDAQ index over the same period. On the KOSPI, stocks most heavily bought by individuals also underperformed the market over one and three months, turning positive only at six months.
Stocks heavily bought by institutions and foreign investors delivered improving excess returns in both markets as holding periods lengthened. In the KOSDAQ market in particular, both institutions and foreign investors outperformed the market from the one-month mark, with excess returns rising further at three and six months.
Individuals traded in opposite directions when picking individual stocks and when reacting to moves in the overall market. An analysis of trading responses following index moves between 2020 and 2025 found that individuals increased net buying in both markets after the index rose, with the net buying response peaking one trading day later before fading quickly. In other words, they bought individual stocks when prices fell but stepped up purchases when the broader market gained. "Trading behavior by investor type differed not only in the direction of trades in response to price changes, but also in the size of the response," Hong said.