Foreign investor trading behavior has evolved

摘要

Foreign (equity portfolio) investors have been characterized as return chasers in both the empirical and theoretical literature. Using 1996-1998 investor trading data from Korea, Choe et al. (2005) document that foreign investors trade at disadvantaged prices, because they trade after prices have moved against them. Using a 2004-2015 sample of Korean data, we show that these established facts have changed: foreigners do not any longer trade after prices have moved against them and are no longer disadvantaged; they trade at more favorable prices compared with domestic institutions. We document an essentially monotonic evolution of foreign investor trading behavior over time, from return chasing toward well-timed negative feedback trading, which parallels the improvement in their trading prices. Using marketwide-foreign investor trading data available from around the world, we show that foreigners' shift away from positive feedback trading is a pervasive phenomenon. These findings imply a major empirical update on foreign investor trading behavior. (C) 2019 Elsevier B.V. All rights reserved.