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

Published online by Cambridge University Press:  06 April 2009

Anthony Richards
Anthony Richards
Affiliation:
richardsa@rba.gov.au, Economic Group, Reserve Bank of Australia, GPO Box 3947, Sydney 2001, Australia.
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Abstract

This paper analyzes a new dataset 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. The nature of this trading suggests it is due to behavioral 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 impact on emerging markets than implied by previous work.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 40 , Issue 1 , March 2005 , pp. 1 - 27
Copyright
Copyright © School of Business Administration, University of Washington 2005

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