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

Choe, Hyuk; Kho, Bong‐Chan; Stulz, René M.

doi:10.3386/w10502

Cited by 120 publications

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“…Beyond North America, Bailey et al (2012) and Chan et al (2008) describe intriguing multi-board trading structures in Thailand and China, respectively, and explain how information asymmetry affects fragmented trading. Also, foreigners are disadvantaged in Korea (Choe et al, 2005) while they wield superior information processing capability in Thailand and Singapore (Bailey et al, 2007).…”

Section: Informed Trading and Cross-border Price Discoverymentioning

confidence: 99%

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

Chen¹,

Choi²

2012

Journal of Empirical Finance

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Section: Informed Trading and Cross-border Price Discoverymentioning

confidence: 99%

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

Chen¹,

Choi²

2012

Journal of Empirical Finance

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“…Answering this question will add to our understanding of the role of foreign investors in emerging markets, and the associated benefits and costs. This research also intends to test in a wider sample of countries, the country-specific findings of Huang and Shui (2005) on foreign investors improving the information of the Taiwanese firms, and Choe, Kho and Stulz (2005) and Agudelo (2005) on foreign investors reducing liquidity on the firms and days where they trade the most, in Korea and Indonesia, respectively. This question also has a direct implication for the institutional investors that engage actively in herding as reported by Sias (2004) and Bowe and Domuta (2001), since decreasing liquidity in times of active foreign trading would make herding more costly.…”

Section: Introductionmentioning

confidence: 99%

Friend or Foe? Foreign Investors and the Liquidity of Six Asian Markets

Agudelo

2010

SSRN Journal

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This finding is shown consistent with two hypotheses: that foreign investors demand liquidity more aggressively than locals, and, to a lesser extent, that foreigners incorporate market-wide information. On the other hand, the overall share of foreign ownership in the market is positively related to improved liquidity, as shown in a sample of emerging markets, after controlling for a set of confounding factors. Overall, the results portray foreign investors as aggressive liquidity demanding, and nevertheless having a positive effect on the liquidity in short horizons.3

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“…It is the same as Choe, Kho, Stulz (2005). Model (1) and model (2) are used to examine the net purchase of foreign sector on market index and liquidity respectively.…”

Section: Methodsmentioning

confidence: 99%

“…In addition, the research had no evidence to prove that foreign sector destabilized Korea's stock market. The other research of Choe, Kho, & Stulz (2005) present the trading of foreign investors in Korea and tested three hypothesis: (1) Foreign investors are less patient when trading on low liquidity market; (2) Foreign investors receive more information than domestic ones and (3) they trade stocks after price had moved against them. They use methodology of Pool Ordinary Least Square to examine the relationship between intensive trading volume of foreign investors and behavior of domestic investors as well as price movement.…”

Section: Foreign Trading Activities Stock Market Returns and Performmentioning

confidence: 99%

The Impact of Foreign Investor Trading Activity on Vietnamese Stock Market

Nguyen¹

2017

IJMS

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The Literature Review Financial Liberalization and Stock Market DevelopmentFinancial liberalization plays an important role on developing equity market in emerging countries. Henry (2000) conducts the research on the sample of 12 emerging markets and gives and strong evidence to prove that equity index witnesses the significant abnormal return after government opens capital market. By using some control variables like world stock return, macroeconomic factors and concurrent economic reforms, this paper suggests that cost of capital will be reduced by sharing risks between foreign and domestic investors. This is one big advantage that stock market liberalization brings to emerging countries. In these markets, asymmetric information as well as investment experience is always prevalent problem for individual investors. That is a reason why foreign sector plays an important role on leading the movement of market. With the same conclusion, Bekaert & Harvey (2000) confirm that capital market integration reduces cost of capital as well as increases economic growth. Moreover, the reason for foreign investors to be attracted by emerging markets is to seek diversification for their portfolio. Stulz (1999) gives two channels to reduce cost of capital. First, financial liberalization decreases discount rate and second, expected cash flow increases due to increase in monitoring of management and shareholders. However, this study also points out that the significant reduction in cost premium is very small because of home bias effect. Choosing which country and which company to invest is complicated procedure and it depends on many factors. Aggarwal, Klapper & Wysocky (2005) reveal that professional foreign investors tend to select the firms basing on not only their financial performance but also transparency and disclosure. The study of Levine & Zervos (1998) indicates that stock market becomes bigger with higher liquidity after government implements international integration policy in finance. The regulatory indicators become better and equity market becomes more efficient and informational. The easy access to information by domestic and foreign companies associates positively to stock market development. Kassimatis (2002) conducts the research in six countries: Argentina, India, Pakistan, Philippines, South Korea and Taiwan, which confirms that openness of financial market reduces its volatility. Several recent empirical researches also present the positive relationship between financial integration and equity market development. Cajueiro, Gogas, & Tabak (2009) reveal that Greek stock exchange receives many benefits from this phenomenon such as reducing cost of capital, improving market efficiency and economic environment.By contrast, some studies show opposite view about impact of financial liberalization on equity market. Kawakatsu & Morey (1999) illustrate that there is no significant difference in stock market before and after actual liberalization. Umutlu, Akdeniz, & Altay-Salih (2010) show strong evidence to...

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

Abstract: Tesar, and two anonymous referees. The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of Economic Research.

Cited by 120 publications

References 0 publications

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

Does information vault Niagara Falls? Cross-listed trading in New York and Toronto

Friend or Foe? Foreign Investors and the Liquidity of Six Asian Markets

The Impact of Foreign Investor Trading Activity on Vietnamese Stock Market

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