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Friend or Foe? Foreign investors and the liquidity of six Asian markets

Author

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  • Diego Alonso Agudelo Rueda
  • Milena Castano

Abstract

Studying Foreign flows and the liquidity of six Asian markets we provide evidence of two empirical regularities: On the one hand, foreign trade has a negative but transitory impact on the overall liquidity of the market on a daily basis.This finding is shown consistent with two hypotheses: that foreign investors demand liquidity more aggressively than locals, and, to a lesser extent, that foreigners incorporate market-wide information. On the other hand, the overall share of foreign ownership in the market is positively related to improved liquidity, as shownin a sample of emerging markets, after controlling for a set of confounding factors. Overall, the results portray foreign investors as aggressive liquidity demanding, and nevertheless having a positive effect on the liquidity in short horizons.

Suggested Citation

  • Diego Alonso Agudelo Rueda & Milena Castano, 2010. "Friend or Foe? Foreign investors and the liquidity of six Asian markets," Documentos de Trabajo de Valor Público 10653, Universidad EAFIT.
    • Handle: RePEc:col:000122:010653
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    References listed on IDEAS

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    Cited by:

    1. Rogers Ondiba Ochenge & Rose Ngugi & Peter Muriu & David McMillan, 2020. "Foreign equity flows and stock market liquidity in Kenya," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1781503-178, January.
    2. Lim, Kian-Ping & Thian, Tze-Chung & Hooy, Chee-Wooi, 2015. "Corporate Shareholdings and the Liquidity of Malaysian Stocks: Investor Heterogeneity, Trading Account Types and the Underlying Channels," MPRA Paper 67602, University Library of Munich, Germany.
    3. Ijaz Ur Rehman & Nurul Shahnaz Mahdzan & Rozaimah Zainudin, 2016. "Is the relationship between macroeconomy and stock market liquidity mutually reinforcing? Evidence from an emerging market," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(3), pages 294-316.
    4. Ghassan Omet, 2011. "Stock Market Liquidity: Comparative Analysis of The Abu Dhabi Stock Exchange and Dubai Financial Market," Working Papers 655, Economic Research Forum, revised 12 Jan 2011.
    5. Lim, Kian-Ping & Thian, Tze-Chung & Hooy, Chee-Wooi, 2017. "Investor heterogeneity, trading account types and competing liquidity channels for Malaysian stocks," Research in International Business and Finance, Elsevier, vol. 41(C), pages 220-234.
    6. Liew, Ping-Xin & Lim, Kian-Ping & Goh, Kim-Leng, 2018. "Foreign equity flows: Boon or bane to the liquidity of Malaysian stock market?," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 161-181.
    7. Múnera, Daimer J. & Agudelo, Diego A., 2022. "Who moved my liquidity? Liquidity evaporation in emerging markets in periods of financial uncertainty," Journal of International Money and Finance, Elsevier, vol. 129(C).
    8. Wee-Yeap Lau & Tien-Ming Yip, 2019. "Modeling Trading Behavior in the Japanese Stock Market During QE Tapering and Post-QE Exit," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(4), pages 409-427, December.

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