Did Foreign Investors Destabilize the Korean Equity Market during the Asian Crisis?

Abstract

This paper investigates the behavior of foreign equity investment in the Korean market over the period of 1995 through 2001. The main questions examined in this paper are: Is foreign equity investment is relatively more reversible than domestic investment in the wake of financial crisis? And do foreign equity investors tend to increase the volatility of the market more than domestic investors? The empirical results indicate that equity investment activity by foreigners was more reversible than domestic investment for the duration of financial crisis period. Furthermore, I have found evidence that foreign equity investors tend to cause higher volatility in the market than domestic investors.