Nonlinear Evidence of Investor Heterogeneity: Retail Cash Flows as Drivers of Market Dynamics (2508.20426v1)

Abstract: This study measures the long memory of investor-segregated cash flows within the Korean equity market from 2015 to 2024. Applying detrended fluctuation analysis (DFA) to BUY, SELL, and NET aggregates, we estimate the Hurst exponent ($H$) using both a static specification and a 250-day rolling window. All series exhibit heavy tails, with complementary cumulative distribution exponents ranging from approximately 2 to 3. As a control, time-shuffled series yield $H \approx 0.5$, confirming that the observed persistence originates from the temporal structure rather than the distributional shape. Our analysis documents long-range dependence and reveals a clear ranking of persistence across investor types. Persistence is strongest for retail BUY and SELL flows, intermediate for institutional flows, and lowest for foreign investor flows. For NET flows, however, this persistence diminishes for retail and institutional investors but remains elevated for foreign investors. The rolling $H$ exhibits clear regime sensitivity, with significant level shifts occurring around key events: the 2018--2019 tariff episode, the COVID-19 pandemic, and the period of disinflation from November 2022 to October 2024. Furthermore, regressions of daily volatility on the rolling $H$ produce positive and statistically significant coefficients for most investor groups. Notably, the $H$ of retail NET flows demonstrates predictive power for future volatility, a characteristic not found in institutional NET flows. These findings challenge the canonical noise-trader versus informed-trader dichotomy, offering a model-light, replicable diagnostic for assessing investor persistence and its regime shifts.