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Investment Preference and Strategies of Foreign Institutional Investors Across Different Industries in Taiwan

Author

Listed:
  • Mei-Ling Chen

    (Department of International Business Management, Da-Yeh University, Taiwan)

  • Fu-Lai Lin

    (Department of Finance, Da-Yeh University, Taiwan)

  • Mei-Chin Hung

    (Department of International Business Management, Da-Yeh University, Taiwan)

  • Kai-Li Wang

    (Department of Finance, Tunghai University, Taiwan)

Abstract

This paper investigates the investment preference of foreign institutional investors across different industries in Taiwanese stock market. By employing the idea of Fama and French (1992) three-factor model with investment strategy, the investment preference is a function of beta value, company size, book-market ratio and investment strategy. Our empirical results find that foreign institutional investors in all five industries adopt momentum strategies in their investment preference. Next, in each industry, investment preference has a long-run equilibrium relationship with beta value, company size, book-market ratio, and investment strategy. Moreover, in the electronic, financial, and steel industries, foreign institutional investors' investment preference has corrective power in the short-run. Further, the results of the Granger causality test reveal that the investment preference has a uni-directional leading relationship with beta value in the financial and textile industries. While in case of the steel industry, investment preference and beta value have a bi-directional causal feedback relationship. Industries where company size leads investment preference include electronics, finance, and steel. Book-market ratio leads investment preference only in the textile industry. Generally speaking, in each industry, company size is among the predominant factors that foreign institutional investors take into account when making decisions. The influences of beta value and investment strategy on investment preference do not appear significant. That is, the investment strategy under consideration does not make a difference for investment preference.

Suggested Citation

  • Mei-Ling Chen & Fu-Lai Lin & Mei-Chin Hung & Kai-Li Wang, 2009. "Investment Preference and Strategies of Foreign Institutional Investors Across Different Industries in Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(04), pages 675-694.
    • Handle: RePEc:wsi:rpbfmp:v:12:y:2009:i:04:n:s0219091509001824
    DOI: 10.1142/S0219091509001824
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    Citations

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    Cited by:

    1. Chun-Pin Hsu, 2013. "The Influence of Foreign Portfolio Investment on Domestic Stock Returns: Evidence from Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(3), pages 1-11.
    2. Wei-Kuang Chen & Ching-Ting Lin & Cheng-Yi Shiu, 2019. "Price discovery and price leadership of various investor types: evidence from Taiwan futures markets," Review of Quantitative Finance and Accounting, Springer, vol. 53(2), pages 601-631, August.
    3. Susana Yu, 2012. "New empirical evidence on the investment success of momentum strategies based on relative stock prices," Review of Quantitative Finance and Accounting, Springer, vol. 39(1), pages 105-121, July.
    4. Ching-Lung Chen & Chung-Yu Chen, 2018. "Do Weak Internal Controls Affect Institutional Ownership Decisions?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(03), pages 1-37, September.

    More about this item

    Keywords

    Foreign institutional investors; investment preference; investment strategy;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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