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Foreign investors’ trading behavior and market conditions: Evidence from Taiwan

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  • Tsai, Li-Ju
  • Shu, Pei-Gi
  • Chiang, Sue-Jane

Abstract

We investigate the trading behavior of foreign investors, and how it is related to stock prices under different market conditions in Taiwan. Specifically, we focus on two surrogates of market conditions: stock market turnover and return. Applying Hansen and Seo’s (2002) threshold cointegration model to avoid arbitrarily chosen cutoff values for market conditions, we find that foreign investors facilitate the price discovery function when the market is hot (e.g., high stock market turnover and/or high market return). In contrast, they become market followers when the market is cold (e.g., low stock market turnover and/or low market return).

Suggested Citation

  • Tsai, Li-Ju & Shu, Pei-Gi & Chiang, Sue-Jane, 2019. "Foreign investors’ trading behavior and market conditions: Evidence from Taiwan," Journal of Multinational Financial Management, Elsevier, vol. 52.
    • Handle: RePEc:eee:mulfin:v:52-53:y:2019:i::s1042444x19300490
    DOI: 10.1016/j.mulfin.2019.100591
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    More about this item

    Keywords

    Market conditions; Foreign investors; Threshold cointegration;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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