Bigger Fish in Small Pond: The Interaction between Foreigners’ Trading and Emerging Stock Market Returns under the Microscope
AbstractThis paper provides the first study of foreign investors’ trading in a sizeable European emerging stock market, using a combination of daily and monthly complete data collected at the destination. It also introduces the structural conditional correlation (SCC) methodology to identify the contemporaneous interaction between foreign flows and returns. We show that global emerging market returns are an additional driver of foreign flows after controlling for global developed market returns. Foreigners do negative (positive)-feedback-trade with respect to local returns at the monthly (daily) frequency. SCC methodology shows that the standard assumption in the literature that flows cause returns but not vice versa is not justified even at the daily frequency, making price impact estimates reported in previous literature questionable.
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Bibliographic InfoPaper provided by University of Regensburg, Department of Economics in its series University of Regensburg Working Papers in Business, Economics and Management Information Systems with number 451.
Date of creation: 10 Jan 2011
Date of revision:
Foreign investors' trading in emerging stock markets; feedback trading; price impact; structural VAR; structural conditional correlation;
Other versions of this item:
- Numan Ülkü & Enzo Weber, 2011. "Bigger Fish in Small Pond : The Interaction between Foreigners' Trading and Emerging Stock Market Returns under the Microscope," Working Papers 294, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-23 (All new papers)
- NEP-IFN-2011-01-23 (International Finance)
- NEP-MST-2011-01-23 (Market Microstructure)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenneth A. Froot & Tarun Ramadorai, 2001. "The Information Content of International Portfolio Flows," NBER Working Papers 8472, National Bureau of Economic Research, Inc.
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