Inter-temporal examination of the trading activities of foreign investors in the Korean stock market

Kim, Jaemin; Landi, James H.; Yoo, Sean Sehyun

doi:10.1016/j.pacfin.2008.05.001

Cited by 14 publications

(7 citation statements)

References 16 publications

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“…Empirical evidence suggests that higher frequencies tend to return more evidence in support of their feedback trading, thus denoting that foreign funds employ such strategies for short-horizon investments. On balance, most studies confirm foreign funds' momentum trading in emerging markets, including Brazil (Gonçalves and Eid, 2017), India (Arora, 2016;Hiremath and Kattuman, 2017;Chauhan and Chaklader, 2020), Malaysia (French, 2017;Liew et al, 2018), South Korea (Kim and Wei, 2002b;Choe et al, 2005;Oh et al, 2008;Kim et al, 2009;Jeon and Moffett, 2010;Hong and Lee, 2011;Ikizlerli et al, 2019), Taiwan (Chang, 2010;Chiang et al, 2012;Liao et al, 2013;Hsieh, 2013), Thailand (Phansatan et al, 2012;French, 2017) and Vietnam (Vo, 2017). As per developed markets, similar evidence surfaces in Finland Keloharju, 2000, 2001;Do et al, 2008), Germany (Baltzer et al, 2019), Japan (Karolyi, 2002;Kamesaka et al, 2003;Hood et al, 2013) and Sweden (Dahlquist and Robertsson, 2004); this pattern is also confirmed in crossmarket studies at the regional (Kaminsky et al, 2004;Hsieh et al, 2011;Chakraborty and Kakani, 2016) and global (Froot et al, 2001;Choi and Skiba, 2015;Kanas and Karkalakos, 2017) levels.…”

Section: Empirical Evidencementioning

confidence: 83%

“…Contrarian trading among foreign investors is less frequently encountered, having been documented to date in South Korea (Wang and Lee, 2015), Taiwan (Yang, 2002), Turkey (Adaoglu and Katircioglu, 2013;€ Ulk€ u and Ikizlerli, 2012) and European emerging markets ( € Ulk€ u, 2015) [57]. Key in motivating feedback trading among foreign portfolio investors is their perceived informational disadvantage vis-a-vis their domestic counterparts in their host markets, as has been documented in a series of studies (Brennan and Cao, 1997;Kim and Wei, 2002b;Choe et al, 2005;Kim et al, 2009;Arora, 2016;Gonçalves and Eid, 2017;Hiremath and Kattuman, 2017;Chauhan and Chaklader, 2020). To the extent that buy-decisions are more taxing compared to sell-ones (buy-decisions involve choosing from among the universe of listed stocks; sell-decisions involve focusing on the stocks already present in one's portfolio), one might expect this informational uncertainty to motivate stronger feedback trading on the buy-side.…”

Section: Empirical Evidencementioning

confidence: 99%

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Feedback trading: a review of theory and empirical evidence

Economou

Gavriilidis

Gębka

et al. 2022

RBF

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PurposeThe purpose of this paper is to comprehensively review a large and heterogeneous body of academic literature on investors' feedback trading, one of the most popular trading patterns observed historically in financial markets. Specifically, the authors aim to synthesize the diverse theoretical approaches to feedback trading in order to provide a detailed discussion of its various determinants, and to systematically review the empirical literature across various asset classes to gauge whether their feedback trading entails discernible patterns and the determinants that motivate them.Design/methodology/approachGiven the high degree of heterogeneity of both theoretical and empirical approaches, the authors adopt a semi-systematic type of approach to review the feedback trading literature, inspired by the RAMESES protocol for meta-narrative reviews. The final sample consists of 243 papers covering diverse asset classes, investor types and geographies.FindingsThe authors find feedback trading to be very widely observed over time and across markets internationally. Institutional investors engage in feedback trading in a herd-like manner, and most noticeably in small domestic stocks and emerging markets. Regulatory changes and financial crises affect the intensity of their feedback trades. Retail investors are mostly contrarian and underperform their institutional counterparts, while the latter's trades can be often motivated by market sentiment.Originality/valueThe authors provide a detailed overview of various possible theoretical determinants, both behavioural and non-behavioural, of feedback trading, as well as a comprehensive overview and synthesis of the empirical literature. The authors also propose a series of possible directions for future research.

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Section: Empirical Evidencementioning

confidence: 83%

Section: Empirical Evidencementioning

confidence: 99%

Feedback trading: a review of theory and empirical evidence

Economou

Gavriilidis

Gębka

et al. 2022

RBF

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show abstract

“…This hinges on the rationale that destabilizing short-selling follows a price decline, resulting in a further price drop that leads to additional short-selling that again causes the price to decline further with increased volatility. Following Kim et al (2009), we use VAR and GARCH models to examine price continuation and volatility effects.…”

Section: Destabilization or Stabilizationmentioning

confidence: 99%

Regulatory overkill? Short-sales ban in Korea

Kim

Kim²,

Yoo

2016

IJMF

Self Cite

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Purpose The authors investigate the 2008-2009 short-sales ban in Korea, one of the most comprehensive and restrictive short-selling bans worldwide. The purpose of this paper is to examine: whether the ban stopped a destabilizing effect, if there was any, of short-selling activities; whether the ban improved or deteriorated the informational efficiency or the price discovery process of the stock market; and whether the ban had any impact on market liquidity. Design/methodology/approach Multiple regression; vector autoregression analysis; and generalized autoregressive conditional heteroskedasticity analysis. Findings The authors find no evidence that short-sales have a market-destabilizing effect and thus, restricting short-selling has a market-stabilizing effect. On the contrary, the short-selling ban is associated with an increase in return volatility and a deterioration of the price discovery process, particularly for the stocks without derivatives traded on them. The authors also find evidence of a liquidity decrease for short-sale intensive stocks. However, the evidence is inconclusive as to whether the market efficiency and liquidity changes are solely the result of the short-sales ban or the compound effects of both the ban and the concurrent progress of the financial crisis. Originality/value The literature does not provide a conclusive view on the effects of short-sales or restrictions thereof on the stock market. Also, the existing research on recent worldwide shorting bans often lack empirical scope (e.g. 32 stocks for UK; three weeks for USA). In contrast, the short-sales ban in the Korean stock market, one of the most comprehensive and restrictive short-selling bans worldwide, lasted for eight months for all the listed stocks and is still in effect for financial stocks. The authors find no evidence that short-sales have a market-destabilizing effect and thus, restricting short-selling has a market-stabilizing effect.

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“…However, odd-lot transactions have lost their relevance over time, and recent evidence suggests that trader-type classifications based on trade size got blurred as a result of electronic trading and order divisibility (Hvidkjaer 2008, Campbell et al 2009). §See Kim et al (2009) and Ülkü and Weber (2013) for recent comprehensive studies of KSE trading flows data.…”

Section: Mondays and Reversals In Koreamentioning

confidence: 99%

“…Kim et al (2009) and Ülkü and Weber (2013)]. The conclusions of the literature on trading by investor types can be summarized as follows: individuals appear to be uninformed contrarian liquidity suppliers.…”

mentioning

confidence: 99%

Reversal of Monday returns

Ülkü

Andonov

2015

Quantitative Finance

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This paper elaborates an interesting aspect of the Monday anomaly: Monday returns are relatively more likely to reverse over the subsequent days. We document that, although the Monday low-return anomaly disappeared, the subsequent reversal of Monday returns remains robust to date. The reversals, measured over a five-day horizon, are pervasive across international stock markets, reasonably stable over time, significant following both positive and negative Monday returns, and not confined to extreme Monday returns. Trading strategies designed to exploit these reversals earn economic profits. We examine potential explanations for the reversal of Monday returns using trading flows data of investor types from Korea. All predictions of the Foster and Viswanathan [J. Finance, 1993, 48, 187-211] model are confirmed: volatility is higher, trading volume is lower, market depth is lower and price impact costs are higher on Mondays. The model implies lower price quality on Mondays, but does not specifically predict reversal of Monday returns. We show that the trading intensity of international/institutional investors is lower on Mondays. This appears to make the market relatively more susceptible to individual investors' trading, which is negatively correlated with international/institutional investors. Thus, Monday returns are relatively more likely to reverse during the subsequent days of the week when institutional investors trade more aggressively.

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Inter-temporal examination of the trading activities of foreign investors in the Korean stock market

Cited by 14 publications

References 16 publications

Feedback trading: a review of theory and empirical evidence

Feedback trading: a review of theory and empirical evidence

Regulatory overkill? Short-sales ban in Korea

Reversal of Monday returns

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