Trading behavior and stock returns in Japan

•Institutional investors net buy growth stocks and net sell value stocks.•Individual investors net buy small/value stocks, and net sell large/growth stocks.•Institutional trading information improves the value strategy.•Investors’ trading behavior is weak in explaining value and size premiums in Japan.

By using comprehensive firm-level dataset which includes all investors’ holdings in Japan, we show that institutional investors tend to net buy growth stocks and net sell value stocks. Conversely, individual investors tend to net buy small and value stocks, and net sell large and growth stocks. There is a significantly negative relation between annual changes in institutional ownership and future stocks returns. From an investment perspective, incorporating institutional trading information can significantly improve the value strategy.