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The Impact of Foreigners’ Trades on Equity Prices: Evidence from Macedonian Stock Exchange

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  • Angelovska Julijana

    (PhD, Associate Professor, Faculty of Economics, University of Tourism and Management)

Abstract

Emerging countries’ economies are dependent on foreign capital inflows. For policy makers and researchers of particular interest is to understand the nature of these flows and their impact on the domestic capital market. The first significant foreign inflows entered the Macedonian Stock Market at the end of 2004, and stock prices were increased. It was general belief among the investors that foreigners are driving the prices on the Macedonian Stock Market. This study examines the influence of foreign investors’ trades on stock returns in Macedonia using base broadening and price pressure hypotheses. Strong evidence consistent with the base-broadening hypothesis shows that 1% of monthly net inflows as a percentage of last month market capitalization is connected with 7% rise in monthly returns on the Macedonian stock market. The findings do not support the price pressure hypothesis, so the rise in the prices is permanent.

Suggested Citation

  • Angelovska Julijana, 2020. "The Impact of Foreigners’ Trades on Equity Prices: Evidence from Macedonian Stock Exchange," South East European Journal of Economics and Business, Sciendo, vol. 15(1), pages 56-65, June.
    • Handle: RePEc:vrs:seejeb:v:15:y:2020:i:1:p:56-65:n:5
    DOI: 10.2478/jeb-2020-0005
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign investor; price pressure; base broadening; equity price; Macedonian Stock Market;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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