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Momentum and Foreign Investors: Evidence from the Korean Stock Market

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  • Jangkoo Kang
  • Kyungyoon Kwon
  • Hyoung-jin Park

Abstract

We examine whether the price impact of foreign investors on the Korean stock market from December 2000 to February 2007 generated a momentum phenomenon. In our empirical results, foreigners seem to have exerted a significantly positive impact on prices in “up” markets (periods of positive stock returns), but have had little impact on prices in “down” markets (periods of negative returns). We document that the impact of foreigners’ trades is concentrated in large companies. Most importantly, when the market is in the up state, the returns of stocks of large companies that were positively affected by foreign investors in the previous six-month period continue to increase in the subsequent six-month period. As a result, the subsequent six-month return on a past “winner” stock portfolio is significantly higher than that on a past “loser” stock portfolio. This brings to mind a momentum phenomenon that has been reported not to exist in the Korean stock market.

Suggested Citation

  • Jangkoo Kang & Kyungyoon Kwon & Hyoung-jin Park, 2014. "Momentum and Foreign Investors: Evidence from the Korean Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S5), pages 131-147, September.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:s5:p:131-147
    DOI: 10.2753/REE1540-496X5005S509
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    Cited by:

    1. Jang, Hyeonung & Seo, Byoung Ki, 2022. "Transmission of central bank communication to emerging economies: Evidence from the Korean stock market," Emerging Markets Review, Elsevier, vol. 52(C).
    2. Kang, Jangkoo & Kwon, Kyung Yoon & Park, Hyoung-jin, 2016. "Foreign investors and the delay of information dissemination in the Korean stock market," Pacific-Basin Finance Journal, Elsevier, vol. 38(C), pages 1-16.
    3. Jieun Lee & Doojin Ryu & Ali M. Kutan, 2016. "Monetary Policy Announcements, Communication, and Stock Market Liquidity," Australian Economic Papers, Wiley Blackwell, vol. 55(3), pages 227-250, September.

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