Identifying the interaction between stock market returns and trading flows of investor types: Looking into the day using daily data

•A new, comprehensive solution to a notorious problem in the microstructure literature.•The proposed SCCC model enables identification of the simultaneity between returns and trading flows.•It helps identify information content of an investor group, its reaction to public and private information.•We apply this method to daily data from Korea Stock Exchange with a rich break-down of investor types.•We find significant bilateral spillovers and latent common drivers; Cholesky assumption invalid. This paper introduces a new method for identifying the simultaneity between returns and trading flows. The proposed method enables us to identify the intraday interaction using daily data, and provides measures of the information content of trading flows, and their instantaneous response to public information and information revealed by market prices. Applying this method to daily data on investor types from the Korea Stock Exchange, we find significant intraday bi-directional interaction between flows and returns and their latent common drivers, altering some of the results of the previous literature based on Cholesky assumptions. Thus, we obtain a number of new insights concerning the behavior of investor types.