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Foreign Ownership Restriction and Momentum – Evidence from Emerging Markets

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  • Yafeng Qin
  • Min Bai

Abstract

This study investigates the impact of foreign investors on stock price efficiency and return predictability in emerging markets. It finds that stocks fully investible for foreign investors exhibit stronger price momentum than non-investible stocks. The difference in momentum effects between stocks with different levels of investibility cannot be fully explained by world market risk, size, turnover, or country-specific factors. Further tests show that fully investible stocks have no post-earnings-announcement drift (PEAD), and their short-term momentum reverses over a longer horizon. These results show that the stronger momentum of highly investible stocks does not appear to be driven by foreign investors' underreaction to firm-specific information, but is more likely to be generated by their positive feedback trading.

Suggested Citation

  • Yafeng Qin & Min Bai, 2014. "Foreign Ownership Restriction and Momentum – Evidence from Emerging Markets," International Review of Finance, International Review of Finance Ltd., vol. 14(2), pages 237-261, June.
    • Handle: RePEc:bla:irvfin:v:14:y:2014:i:2:p:237-261
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    File URL: http://hdl.handle.net/10.1111/irfi.12019
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    3. Ahmad Maulin Naufa & Mamduh M. Hanafi & I Wayan Nuka Lantara, 2021. "Foreign Ownership, Stock Performance-Risk, And Macroeconomic Factors In Asean Countries," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 24(1), pages 151-168, March.
    4. Josef Fink, 2020. "A Review of the Post-Earnings-Announcement Drift," Working Paper Series, Social and Economic Sciences 2020-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
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    6. Greg Filbeck & Xin Zhao & Ryan Knoll, 2017. "An analysis of working capital efficiency and shareholder return," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 265-288, January.
    7. Bai, Min & Qin, Yafeng & Zhang, Huiping, 2021. "Stock price crashes in emerging markets," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 466-482.

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