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Do foreign short-sellers predict stock returns? Evidence from daily short-selling in Korean stock market

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  • Wang, Shu-Feng
  • Lee, Kuan-Hui

Abstract

We investigate the daily short-selling by foreign investors and their impact on stock price, liquidity, and volatility in the Korean stock market. From January 1, 2006, to May 31, 2010, we find that the majority of short-selling is performed by foreign, rather than by domestic, investors and that foreign short-sellers are contrarians, whose large short-selling predicts short-run future return. We also find that foreign investors' short-selling is performed when buying-pressure is high, but does not improve stock liquidity. Furthermore, we find that foreign investors' short-selling does not increase volatility, providing evidence against the foreign investors' destabilizing role in emerging markets.

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  • Wang, Shu-Feng & Lee, Kuan-Hui, 2015. "Do foreign short-sellers predict stock returns? Evidence from daily short-selling in Korean stock market," Pacific-Basin Finance Journal, Elsevier, vol. 32(C), pages 56-75.
    • Handle: RePEc:eee:pacfin:v:32:y:2015:i:c:p:56-75
    DOI: 10.1016/j.pacfin.2015.01.004
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    10. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2016. "Emerging trends in Asia-Pacific finance research: A review of recent influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 66-76.
    11. Choi, Insu & Lee, Myounggu & Kim, Hyejin & Kim, Woo Chang, 2023. "Elucidating Directed Statistical Dependencies: Investigating Global Financial Market Indices' Influence on Korean Short Selling Activities," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
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    More about this item

    Keywords

    Short-selling; Foreign investor; Emerging market; Korean stock market;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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