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Do Foreign Investors Underperform or Outperform Domestic Investors in Trading Activities? Evidence from Indonesia

Author

Listed:
  • Deddy P. Koesrindartoto

    (School of Business and Management, Institut Teknologi Bandung, Jl. Ganesha 10, Bandung 40132, Indonesia)

  • Aurelius Aaron

    (School of Accounting and Finance, The Hong Kong Polytechnic University, 11 Yuk Choi Rd, Kowloon, Hong Kong)

  • Shuqi Wang

    (Department of Economics and Finance, University of Stavanger, Kjell Arholms Gate 41, 4021 Stavanger, Norway)

Abstract

The performance of foreign investors relative to domestic investors has been a subject of mixed evidence. While foreign investors are often perceived to underperform due to an information disadvantage, they are also known for their aggressive trading and superior performance in initiated orders. We provide further clarity on this issue. Specifically, by analyzing over five million transactions on the Jakarta Stock Exchange, our findings reveal that foreign investors consistently outperform domestic investors in terms of both annualized returns and profit amounts. Further investigation attributes this outperformance to the higher sophistication of foreign investors, who demonstrate superior stock-picking abilities and effective growth investing strategies.

Suggested Citation

  • Deddy P. Koesrindartoto & Aurelius Aaron & Shuqi Wang, 2024. "Do Foreign Investors Underperform or Outperform Domestic Investors in Trading Activities? Evidence from Indonesia," IJFS, MDPI, vol. 12(4), pages 1-11, October.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:4:p:100-:d:1494598
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    References listed on IDEAS

    as
    1. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, April.
    2. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
    3. Locke, Peter R. & Mann, Steven C., 2005. "Professional trader discipline and trade disposition," Journal of Financial Economics, Elsevier, vol. 76(2), pages 401-444, May.
    4. Harald Hau, 2001. "Location Matters: An Examination of Trading Profits," Journal of Finance, American Finance Association, vol. 56(5), pages 1959-1983, October.
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