Interdependent Trading Behavior of Foreign and Local Investors: Evidence from the Colombo Stock Exchange

Abstract

This study examines the interdependent trading behaviour of investors in foreign and local contexts with a particular reference to the Colombo Stock Exchange (CSE) of Sri Lanka to fill up the gap in the local literature regarding behavioural aspects and independence among foreign and local investors within their investment policies, procedures, and actions. Based on secondary data collected from a statistical sample drawn from daily trading statistics of CSE, covering both buying and selling actions of local and foreign investors for the period from 2007 to 2019, this study has examined the nature of four main investor groups namely foreign institutions, foreign individuals, domestic institutions, and domestic individuals in terms of daily purchases turnover, sales turnover, share volume traded purchases, and share volume traded sales data. The results showed that the local investors are quite irrational concerning the foreign investors. Hence, foreign investors' interdependence on local investors' behavioural information is weak. Local investors also highly rely on their trading behavior instead of being vigilant about the trading behaviour of foreign investors.