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The impact of foreign trades on emerging market liquidity

Author

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  • Peranginangin, Yessy
  • Ali, Akbar Z.
  • Brockman, Paul
  • Zurbruegg, Ralf

Abstract

We examine the transmission mechanisms through which foreign trades affect commonality in liquidity in an emerging stock market. Trade-level data from the Indonesian Stock Exchange allow us to examine the impact of aggressive foreign trades on commonality in liquidity. Our results show that these trades contribute significantly to the price discovery process as well as to increasing commonality in liquidity. We find that the price discovery impact of aggressive foreign trading provides the mechanism through which foreign investor trading affects emerging market liquidity dynamics. Overall, our study shows that foreign investor trading is a double-edged sword.

Suggested Citation

  • Peranginangin, Yessy & Ali, Akbar Z. & Brockman, Paul & Zurbruegg, Ralf, 2016. "The impact of foreign trades on emerging market liquidity," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 1-16.
  • Handle: RePEc:eee:pacfin:v:40:y:2016:i:pa:p:1-16
    DOI: 10.1016/j.pacfin.2016.07.002
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    Cited by:

    1. repec:eee:riibaf:v:42:y:2017:i:c:p:986-991 is not listed on IDEAS
    2. repec:eee:finana:v:52:y:2017:i:c:p:88-93 is not listed on IDEAS
    3. repec:eee:pacfin:v:43:y:2017:i:c:p:188-199 is not listed on IDEAS

    More about this item

    Keywords

    Commonality in liquidity; Price discovery; Foreign investors; Financial crisis;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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