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Foreign equity investors and momentum profits : Evidence from Korea

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Frame of Image  of each individual stock on a daily basis. Following Grinblatt and Keloharju (2000)’s methodologies, we find strong evidence of positive feedback trading by foreign investors for the period of 1999~2014. We also find that momentum profits are more pronounced among stocks that undergo bigger increases of foreigners’ holdings. In addition, the big magnitude of momentum profits conditional on increases of foreigners’ holdings is not affected by stocks’ attributes, such as market capitalization, book-to-market ratio, beta, and turnover ratio. In our robustness checks, we construct momentum portfolios based on firm-specific returns and also observe significant firm-specific momentum profits for those stocks incurring increases in foreigners’ holdings. Finally, we offer both risk- and behavior- based interpretations for our findings. Keywords : Foreign Investors, Positive Feedback Trading, Momentum Profits JEL Classification Number : G11, G12, G14, G15
Received 18 March 2015; Revised 16 July 2015; Accepted 28 October 2015 * T he author thanks Korea University Business School for research support. For helpful comments, the author would like to thank two anonymous referees, Dong Wook Lee, Joon Ho Hwang, Ji-Woong Chung, Baeho Kim, and Myeong Hyeon Kim. All remaining errors are my own. ** LG -PO SCO Bldg, Korea University Business School (E-mail: slingxia@gmail.com)
Foreign Equity Investors and Momentum Profits
27
Ⅰ. Introduction
Since many emerging markets were opened to foreign inve


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Title Foreign equity investors and momentum profits
Similar Titles
Sub Title

Evidence from Korea

Material Type Articles
Author(English)

Sun, Lingxia

Publisher

[Seoul]:Korea Institute of Finance

Date 2016-03
Journal Title; Vol./Issue Journal of Money & Finance:Vol. 30(No. 1)
Pages 32
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Trade
Economy < Direct Investment
Holding Korea Institute of Finance

Abstract

This paper examines the trading behavior of foreigner equity investors and its impact on momentum profits. The Korean stock market makes a good setting for this study because of its openness to foreign investors and the availability of a rich dataset that records foreignners’ holdings and trading of each individual stock on a daily basis. Following Grinblatt and Keloharju (2000)’s methodologies, we find strong evidence of positive feedback trading by foreign investors for the period of 1999~2014. We also find that momentum profits are more pronounced among stocks that undergo bigger increases of foreigners’ holdings. In addition, the big magnitude of momentum profits conditional on increases of foreigners’ holdings is not affected by stocks’ attributes, such as market capitalization, book-to-market ratio, beta, and turnover ratio. (The rest omitted)