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Foreign investor trading behavior has evolved

Author

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  • Onishchenko, Olena
  • Ülkü, Numan

Abstract

Foreign (equity portfolio) investors have been characterized as return chasers in both the empirical and theoretical literature. Using 1996–1998 investor trading data from Korea, Choe et al. (2005) document that foreign investors trade at disadvantaged prices, because they trade after prices have moved against them. Using a 2004–2015 sample of Korean data, we show that these established facts have changed: foreigners do not any longer trade after prices have moved against them and are no longer disadvantaged; they trade at more favorable prices compared with domestic institutions. We document an essentially monotonic evolution of foreign investor trading behavior over time, from return chasing toward well-timed negative feedback trading, which parallels the improvement in their trading prices. Using marketwide-foreign investor trading data available from around the world, we show that foreigners’ shift away from positive feedback trading is a pervasive phenomenon. These findings imply a major empirical update on foreign investor trading behavior.

Suggested Citation

  • Onishchenko, Olena & Ülkü, Numan, 2019. "Foreign investor trading behavior has evolved," Journal of Multinational Financial Management, Elsevier, vol. 51(C), pages 98-115.
    • Handle: RePEc:eee:mulfin:v:51:y:2019:i:c:p:98-115
    DOI: 10.1016/j.mulfin.2019.04.005
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    Citations

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    Cited by:

    1. Olena Onishchenko & Numan Ülkü, 2022. "Investor types' trading around the short‐term reversal pattern," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2627-2647, April.
    2. Thiago Christiano Silva & Benjamin Miranda Tabak & Idamar Magalhães Ferreira, 2019. "Modeling Investor Behavior Using Machine Learning: Mean-Reversion and Momentum Trading Strategies," Complexity, Hindawi, vol. 2019, pages 1-14, December.
    3. Paramita Mukherjee & Sweta Tiwari, 2022. "Trading Behaviour of Foreign Institutional Investors: Evidence from Indian Stock Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(4), pages 605-629, December.
    4. Tsai, Li-Ju & Shu, Pei-Gi & Chiang, Sue-Jane, 2019. "Foreign investors’ trading behavior and market conditions: Evidence from Taiwan," Journal of Multinational Financial Management, Elsevier, vol. 52.
    5. Burak Alparslan Eroğlu & Deniz İkizlerli & Numan Ülkü, 2024. "A mixed-frequency VAR application to studying joint dynamics of foreign investor trading and stock market returns," Empirical Economics, Springer, vol. 67(1), pages 47-73, July.

    More about this item

    Keywords

    Foreign investors; Positive feedback trading; Average buying-selling prices;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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