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Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea

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  • Hyuk Choe
  • Bong-Chan Kho
  • René M. Stulz

Abstract

We investigate whether domestic investors have an edge over foreign investors in trading domestic stocks. Using Korean data, we show that foreign money managers pay more than domestic money managers when they buy and receive less when they sell for medium and large trades. The sample average daily trade-weighted disadvantage of foreign money managers is 21 basis points for purchases and 16 basis points for sales. There is also some evidence that domestic individual investors have an edge over foreign investors. The explanation for these results is that prices move more against foreign investors than against domestic investors before trades. Copyright 2005, Oxford University Press.

Suggested Citation

  • Hyuk Choe & Bong-Chan Kho & René M. Stulz, 2005. "Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea," The Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 795-829.
    • Handle: RePEc:oup:rfinst:v:18:y:2005:i:3:p:795-829
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    File URL: http://hdl.handle.net/10.1093/rfs/hhi028
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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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