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Bigger Fish in Small Pond : The Interaction between Foreigners' Trading and Emerging Stock Market Returns under the Microscope

  • Numan Ülkü

    ()

    (Central European University Business School)

  • Enzo Weber

    ()

    (University of Regensburg, Osteuropa-Institut, Regensburg (Institut for East European Studies))

This 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 col-lected 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 contemporaneously but not vice versa, is not justified, even at the daily fre-quency, making price impact estimates reported in previous literature questionable

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Paper provided by Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) in its series Working Papers with number 294.

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Length: 44
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:ost:wpaper:294
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  1. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  2. 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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