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Big Fish in Small Ponds: The Trading Behaviour and Price Impact of Foreign Investors in Asian Emerging Equity Markets

  • Anthony Richards

    (Reserve Bank of Australia)

This paper analyses data for the aggregate daily trading of all foreign investors in six Asian emerging equity markets and provides two new findings. First, foreigners’ flows into several markets show positive-feedback trading with respect to global, as well as domestic, equity returns. In particular, foreigners tend to be buyers in these markets on the day after rises in these markets or in US markets. The nature of this trading suggests it is due to behavioural factors or foreigners extracting information from recent returns, rather than portfolio-rebalancing effects. Second, the price impacts associated with foreigners’ trading are much larger than earlier estimates. The results suggest that foreign investors and external conditions have a larger effect on emerging markets than implied by previous work.

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File URL: http://www.rba.gov.au/publications/rdp/2004/pdf/rdp2004-05.pdf
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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2004-05.

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Date of creation: Jun 2004
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Handle: RePEc:rba:rbardp:rdp2004-05
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  1. Hyuk Choe & Bong-Chan Kho & Rene M. Stulz, 2004. "Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea," NBER Working Papers 10502, National Bureau of Economic Research, Inc.
  2. Geert Bekaert & Campbell R. Harvey & Robin L. Lumsdaine, 1999. "The Dynamics of Emerging Market Equity Flows," NBER Working Papers 7219, National Bureau of Economic Research, Inc.
  3. Eduardo Borensztein & R. Gaston Gelos, 2003. "A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 3.
  4. Stephen J. Brown & William N. Goetzmann & Takato Hiraki & Noriyoshi Shirishi & Masahiro Watanabe, 2003. "Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows," NBER Working Papers 9470, National Bureau of Economic Research, Inc.
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  6. Grinblatt, Mark & Keloharju, Matti, 2000. "The investment behavior and performance of various investor types: a study of Finland's unique data set," Journal of Financial Economics, Elsevier, vol. 55(1), pages 43-67, January.
  7. Dahlquist, Magnus & Robertsson, Goran, 2004. "A note on foreigners' trading and price effects across firms," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 615-632, March.
  8. Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America; The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
  9. Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-90, July.
  10. William N. Goetzmann & Massimo Massa, 1999. "Index Funds and Stock Market Growth," NBER Working Papers 7033, National Bureau of Economic Research, Inc.
  11. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
  12. John M. Griffin & Jeffrey H. Harris & Selim Topaloglu, 2003. "The Dynamics of Institutional and Individual Trading," Journal of Finance, American Finance Association, vol. 58(6), pages 2285-2320, December.
  13. Bohn, Henning & Tesar, Linda L, 1996. "U.S. Equity Investment in Foreign Markets: Portfolio Rebalancing or Return Chasing?," American Economic Review, American Economic Association, vol. 86(2), pages 77-81, May.
  14. Martin D. D. Evans & Richard K. Lyons, 2003. "How is Macro News Transmitted to Exchange Rates?," NBER Working Papers 9433, National Bureau of Economic Research, Inc.
  15. Michael J. Brennan. and H. Henry Cao., 1997. "International Portfolio Investment Flows," Research Program in Finance Working Papers RPF-271, University of California at Berkeley.
  16. Aditya Kaul & Vikas Mehrotra & Randall Morck, 2000. "Demand Curves for Stocks "Do "Slope Down: New Evidence from an Index Weights Adjustment," Journal of Finance, American Finance Association, vol. 55(2), pages 893-912, 04.
  17. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, vol. 59(2), pages 151-193, February.
  18. Hasbrouck, Joel, 1991. " Measuring the Information Content of Stock Trades," Journal of Finance, American Finance Association, vol. 46(1), pages 179-207, March.
  19. Rene M. Stulz, 1999. "Globalization of Equity Markets and the Cost of Capital," NBER Working Papers 7021, National Bureau of Economic Research, Inc.
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