How Reliable Are the Findings of ‘Foreign’ Investor Studies That Use TIC Data? A Look from the Host Market

Empirical literature on foreign investors' trading in stock markets heavily relies on US Treasury International Capital (TIC) data. Biases in TIC data and the fact that it represents only one source country raise questions on how reliable the conclusions based on TIC data are. Employing novel data of complete foreign flows compiled at destination, we answer these questions. Although the correlations between net flows derived from TIC and destination-compiled data are low, and visible differences exist in some individual country results, TIC findings are not far off in central tendency. Notably, however, net foreign flows' persistence, positive response to world returns and positive contemporaneous correlation with local returns are more significant than TIC data suggest. Measurement noise in TIC data appears to result in underestimation of these key features.