Do Foreign Investors chase or Impact Returns in Turkey?
In: Proceedings of the Conference on Globalization and Its Discontents
There are variant findings regarding whether the foreign investors’ trading decisions have a significant impact on emerging markets’ future stock returns or whether their decisions are primarily driven by past returns. This study attempts to determine the bilateral interaction between foreign investors’ trading activity and returns in Turkish stock market by utilizing Granger-causality and OLS methodologies. The results gathered from VAR analysis imply a strong Granger-causality between foreign net portfolio inflows and stock returns in Turkish stock market. The results indicate that foreign investors follow a negative (contrarian) feedback strategy by buying (selling) past losers (winners). The results gathered from OLS analyses further support the VAR analysis findings indicating that, contemporaneously, there is a significant bilateral interaction between foreign portfolio inflows and stock returns reflecting the existence of price pressure effect and return chasing behavior in Turkish stock market. Overall, both analyses demonstrate that current and lagged stock returns are important determinants in foreign investors’ asset allocation strategies. Furthermore, the findings of this study reveal that foreign investors frequently change their positions on majority of the stocks in Turkish stock market which might basically stem from the absence of exit barriers in Turkish financial markets.
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- Rui Albuquerque & Gregory H. Bauer & Martin Schneider, 2005.
"International equity flows and returns: a quantitative equilibrium approach,"
- Rui Albuquerque & Gregory H. Bauer & Martin Schneider, 2004. "International Equity Flows and Returns: A Quantitative Equilibrium Approach," Staff Working Papers 04-42, Bank of Canada.
- Albuquerque, Rui & Bauer, Gregory & Schneider, Martin, 2005. "International Equity Flows and Returns: A Quantitative Equilibrium Approach," CEPR Discussion Papers 5159, C.E.P.R. Discussion Papers.
- Albuquerque, Rui & Bauer, Gregory H. & Schneider, Martin, 2004. "International equity flows and returns: a quantative equilibrium approach," Working Paper Series 0310, European Central Bank.
- Rui Albuquerque & Gregory Bauer & Martin Schneider, 2004. "International Equity Flows and Returns: A Quantitative Equilibrium Approach," International Finance 0405006, EconWPA.
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