Behavior Of Foreign Investors Research Articles

Foreign trade and China’s yield curve during the COVID-19 pandemic: An analysis based on an extended arbitrage-free Nelson–Siegel model

We propose a general extension of the arbitrage-free Nelson–Siegel (AFNS) model by incorporating exogenous factors into the unspanned AFNS model. Regarding the number of people newly diagnosed with COVID-19 as an exogenous shock and net foreign purchases of treasury bonds of different maturities as unspanned factors, we study the impacts of the COVID-19 pandemic and the trading behavior of foreign investors on the yield curve in China. Our empirical results show that the COVID-19 pandemic significantly increases net foreign purchases of short-to-medium-term treasury bonds while significantly reducing the long-term treasury yield. Net foreign purchases of treasury bonds of different maturities cause large shifts with different shapes in the yield curve and have different effects on the excess returns of bonds of different maturities. This paper provides an important reference for risk management, investment decision-making and risk assessment of China’s financial opening policy for its treasury bond market.

Import and Export of Capital from Russia under Sanctions and Response Measures

The article deals with external sanctions and Russia’s response in connection with the conduct of a special military operation. The subject of the study is mutual measures to restrict the movement of capital, their adjustment by the Russian side as the economy adapts. Particular attention is paid to the problem of the withdrawal or suspension of activities of foreign companies in Russia: the initial scale of the exodus and their possible consequences are assessed, strategies for the behavior of foreign investors are given, as well as response measures from the Russian government in order to protect the economic interests of the country. It is noted that under the current conditions, Russian business is also forced to sell and regroup its foreign assets, look for new markets and stock platforms to place its securities and invest in foreign ones. An analysis of the balance of payments of the Russian Federation for 2022 indicates a sharp reduction in accumulated liabilities. At the same time, the outflow of capital from the private sector continued, amounting to a record 10 % of GDP, which is a deduction from the country’s investment potential. In conclusion, the consequences and risks for the Russian economy from the adoption of mutual restrictions on the cross-border movement of capital are indicated. Including: an increase in the volatility of the ruble due to a decrease in the infl uence of the fi nancial account, as well as the withdrawal of funds abroad from the sale of foreign assets; an increase in the debt burden on the corporate sector; falling stock market liquidity; problems with enterprise management and reconfiguration of technological processes after the transition to Russian owners, etc.

Indonesian Stock Market Return Volatility and Foreign Portfolio Capital: Evidence Before and During Covid-19 Pandemic

The Covid-19 pandemic increased uncertainty in the Indonesian stock market. This paper aims to investigate foreign and domestic investors' behavior in the Indonesian stock market, especially during the Covid-19 pandemic. The method used was E-GARCH and DCC-GARCH. The results showed that the impact of shocks from bad and good news was greater on the return volatility during the pandemic. The shocks had a positive impact on the increase in the spillover effect of NFI's volatility to return volatility in the short and long term before the pandemic, but this did not happen during the pandemic. There is an indication of bias of forecasting errors and prospect theory in the behavior of investors in the Indonesian stock market. Conservatism bias is also indicated in the behavior of foreign investors. Keywords: Covid-19, E-GARCH, DCC-GARCH, net foreign inflow, return volatility

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

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.

미국의 통화정책과 국내 주식 투자자의 반응

Purpose - The primary objective of this article is to investigate the impact of U.S. monetary policy on institutional / individual / foreign investor reactions in the Korean stock market.
 Design/methodology/approach - This study employs a high frequency event study methodology to identify U.S. monetary policy shocks and quantify the impact of identified shocks on investor reactions. The dependent variable in the regression model is net stock purchase, while the explanatory variables are U.S. monetary policy shocks. The model is estimated for the period 2000-2019, including 156 FOMC meetings.
 Findings - Foreign investors immediately sell stocks in response to contractionary U.S. monetary shocks. They do not, however, react to anticipated changes in monetary policy rates, confirming the rationality of foreign investors. Individual investors demonstrate the opposite response, indicating that a non-trivial proportion of individual investors are irrational.
 Research implications or Originality - This study adds to the current literature on the effect of U.S. monetary policy on the Korean stock market. This study demonstrates a heterogeneous response to U.S. monetary policy shocks, validating the rational investment behavior of foreign investors, while individual investors exhibit a certain degree of irrationality. Methodologically, this study adds to the literature by quantifying the impact of U.S. monetary policy employing a sharper identification method allowing a simple and consistent estimation.

코로나19 사태 전후 미국 주식시장의 정보이전현상과 외국계투자자의 매매행태에 관한 연구

This study analyzed whether there was any change during this period in the information transfer phenomenon of the US stock market to the domestic stock market by dividing it into before and after the outbreak of the corona crisis. Also, during this period, we looked at the changes in the impact of foreign investors’ trading behavior on the domestic stock market. The period for the empirical analysis was from January 2, 2017 to June 17, 2022, and March 11, 2020, when the WHO declared a pandemic, was used as the reference point for the distinction between before and after the outbreak of COVID-19. The main analysis results are as follows. First of all, it was confirmed that the same information transfer phenomenon occurs in the US stock market in terms of yield and volatility in the domestic stock market as in previous studies. However, in the case of the transfer of the return of the domestic stock market to the US stock market, the night return showed a strong effect, but the weekly return showed the opposite result. Therefore, it was found that the domestic stock market overreacted to the US market at the beginning of the day and then went through an adjustment process during the day. No significant differences were found when comparing the domestic nighttime and weekly returns before and after the corona crisis regarding the yield transfer phenomenon from the US market. Second, the trading behavior of foreign investors was found to have a positive (+) effect on the domestic stock market, as expected. When net purchases by foreign investors have a positive (+) value, the KOSPI, as well as large-cap, mid-cap, and small-cap stock indices generally rise. Unlike before and after the outbreak of COVID-19, foreign investors’ trading behavior continued to show an advantage over significant selling, but in terms of their influence on the domestic stock market, no significant difference could be found before and after the outbreak of COVID-19. However, before the outbreak of COVID-19, most indices showed a positive (+) relationship between the nightly yield and the trading behavior of foreign investors, but after that, there was no statistical significance between them. The results of this study are meaningful in that the movements of the US stock market and the trading behavior of foreign investors after the COVID-19 crisis provide important information to investors participating in the domestic capital market in making investment decisions.

Bayesian analysis of time-varying interactions between stock returns and foreign equity flows

This study discusses the trading behavior of foreign investors with respect to economic uncertainty in the South Korean stock market from a time-varying perspective. We employ a news-based measure of economic uncertainty along with the model of time-varying parameter vector autoregression with stochastic volatility. The empirical analysis reveals several new findings about foreign investors’ trading behaviors. First, we find evidence that positive feedback trading often appears during periods of high economic uncertainty, whereas negative feedback trading is exclusively observable during periods of low economic uncertainty. Second, the foreign investors’ feedback trading appears mostly to be well-timed and often leads the time-varying economic uncertainty except in periods of global crises. Third, lagged negative (positive) response of net flows to economic uncertainty is found to be coupled with lagged positive (negative) feedback trading. Fourth, the study documents an asymmetric response of foreign investors with regard to negative and positive shocks of economic uncertainty. Specifically, we find that they instantly turn to positive feedback trading after a negative contemporaneous response of net flows to shocks of economic uncertainty. In contrast, they move slowly toward negative feedback trading after a positive response of net flows to uncertainty shocks.

The impact of currency liberalization on the economy of Ukraine

Examining the transformation of financial relations in Ukraine, in the previous article the authors analyzed the impact of foreign capital on the economic development of this country's economy and found that its concentration in certain economic activities contributed to consolidating its raw material orientation. The authors conclude that due to the distorted model of Ukraine's economic development, successful practices of developed countries to attract foreign investment and reform the financial sector are ineffective in this country's economy. Continuing the study of the transformations of financial relations in Ukraine, which are taking place under the influence of the approximation of domestic legislation to European standards, the authors could not leave aside the question of impact of the liberalization of currency legislation on the economy. Given that currency liberalization significantly affects the behavior of foreign investors, the authors conducted an in-depth analysis of legislative changes in the financial sector, and described the main results of their implementation. The positive and negative consequences of currency liberalization in Ukraine for business entities and the economy in general are analyzed. Particular attention is paid to the risks associated with the liberalization of operations related to the movement of capital and the behavior of non-residents in the financial market of Ukraine. It is concluded that Ukraine's economy with its distorted development model belongs to the financially and institutionally weak ones, hence is not presently ready to liberalize its monetary relations, which could only deepen the deformations and reduce resilience to macroeconomic imbalances.

Foreign Investors’ Abnormal Trading Behavior in the Time of COVID-19

This study investigates the behavior of foreign investors in the Stock Exchange of Thailand (SET) in the time of coronavirus disease 2019 (COVID-19) as to whether trading is abnormal, what strategy is followed, whether herd behavior is present, and whether the actions destabilize the market. Foreign investors' trading behavior is measured by net buying volume divided by market capitalization, whereas the stock market behavior is measured by logged return on the SET index portfolio. The data are daily from Tuesday, August 28, 2018, to Monday, May 18, 2020. The study extends the conditional-regression model in an event-study framework and extracts the unobserved abnormal trading behavior using the Kalman filtering technique. It then applies vector autoregressions and impulse responses to test for the investors' chosen strategy, herd behavior, and market destabilization. The results show that foreign investors' abnormal trading volume is negative and significant. An analysis of the abnormal trading volume with stock returns reveals that foreign investors are not positive-feedback investors, but rather, they self-herd. Although foreign investors' abnormal trading does not destabilize the market, it induces stock-return volatility of a similar size to normal trade. The methodology is new; the findings are useful for researchers, local authorities, and investors.

Вплив валютної лібералізації на економіку України

Examining the transformation of financial relations in Ukraine, in the previous article the authors analyzed the impact of foreign capital on the economic development of this country’s economy and found that its concentration in certain economic activities contributed to consolidating its raw material orientation. The authors conclude that due to the distorted model of Ukraine's economic development, successful practices of developed countries to attract foreign investment and reform the financial sector are ineffective in this country’s economy. Continuing the study of the transformations of financial relations in Ukraine, which are taking place under the influence of the approximation of domestic legislation to European standards, the authors could not leave aside the question of impact of the liberalization of currency legislation on the economy. Given that currency liberalization significantly affects the behavior of foreign investors, the authors conducted an in-depth analysis of legislative changes in the financial sector, and described the main results of their implementation. The positive and negative consequences of currency liberalization in Ukraine for business entities and the economy in general are analyzed. Particular attention is paid to the risks associated with the liberalization of operations related to the movement of capital and the behavior of non-residents in the financial market of Ukraine. It is concluded that Ukraine’s economy with its distorted development model belongs to the financially and institutionally weak ones, hence is not presently ready to liberalize its monetary relations, which could only deepen the deformations and reduce resilience to macroeconomic imbalances.

Pull and Push Factors as Determinants of Foreign REIT Investments

We investigate pull and push factors as drivers of foreign investments in REITs to understand the timing and magnitude of these capital flows. Pull factors are country-specific fundamentals that draw foreign investors to a REIT market. Push factors are fundamentals of other countries such as the United States based on which foreign investors push into or withdraw from a particular REIT market. Using the South African (SA) REIT market as a laboratory, we find that push factors have more explanatory power than pull factors for the behavior of foreign investors in SA REITs. Thus, foreign REIT investors indeed rush in and out of the SA REIT market based on the performance of alternative geographical and asset markets. However, the importance of different pull and push factors for foreign investor behavior varies between small-/medium- and large-cap SA REITs.

With Regard to Local Contents Rule (Non-tariff Barriers to Trade): After Announcing the Shanghai-Hong Kong Stock Connect, is the Chinese Capital Market Suitable for Korean Investors?

Purpose – As the U.S.-China trade war has become considerably worse, the Chinese government is considering applying non-tariff barriers to trade, especially local contents rule. The main purpose of this research is to check whether it is suitable for Korean investors to invest in the current Chinese capital market. Design/methodology – In order to check the stability of the recent Chinese capital market, we investigated the behavior of foreign equity investment (including Korean equity investment) in the Chinese capital market after China announced the Shanghai-Hong Kong Stock Connect (SH-HK Connect). In this paper, we researched whether international portfolio investment would or would not contribute to an increase the volatility of an emerging market’s stock market (Chinese capital market) when foreign investors make investment decisions based on the objective of short-term gains by rushing into countries whose markets are booming and fleeing from countries whose markets are falling. Findings – The empirical results indicate that foreign investors show strong, negative feedback trading behavior with regard to the stock index of the Shanghai Stock Exchange (SSE), and when the performance of foreign investors in the Chinese stock market was fairly good. Also, we found evidence that the behavior of foreign investors significantly decreased volatility in SSE stock returns. Consequently, the SH-HK Connect brought on a win-win effect for both the Chinese capital market and foreign investors. Originality/value – It appeared that the Chinese capital market was very suitable for Korean investors after the China’s declaration of the SH-HK Connect. However, the win-win effect was brought on by the Chinese government’s aggressive capital control but the capital controls could possibly cause financial turmoil in the Chinese capital market. Therefore, Chinese reform in industrial structure and the financial sector should keep pace with suitable capital control policies.

Foreign investors’ trading behavior and market conditions: Evidence from Taiwan

We investigate the trading behavior of foreign investors, and how it is related to stock prices under different market conditions in Taiwan. Specifically, we focus on two surrogates of market conditions: stock market turnover and return. Applying Hansen and Seo’s (2002) threshold cointegration model to avoid arbitrarily chosen cutoff values for market conditions, we find that foreign investors facilitate the price discovery function when the market is hot (e.g., high stock market turnover and/or high market return). In contrast, they become market followers when the market is cold (e.g., low stock market turnover and/or low market return).

Sudden stops of capital flows: Do foreign assets behave differently from foreign liabilities?

We study the determinants of sudden stops in capital flows to emerging markets. Using gross international asset and liability flows (from the point of view of domestic residents), we identify three types of situations: countries that do not experience any type of sudden stops; those who experience a sudden stop in inflows (liabilities), but no sudden stop in their net financial account of the balance of payments; and countries who suffer a sudden stop in inflows and in their net financial account. Based on these three events, we estimate a multinomial logit model and obtain two important results. We find that developed countries have about the same probability of experiencing sudden stops in gross capital inflows as emerging economies. Moreover, the probability of experiencing a sudden stop in gross inflows that winds up becoming a sudden stop in the financial account is affected by the behavior of a country's international assets: countries whose agents possess assets abroad tend to repatriate them during periods of sudden stops in inflows, while the economies of countries whose agents do not possess foreign assets are much more sensitive to the behavior of foreign investors: a sudden stop in inflows can have very adverse effects on output and employment.

Determinants of foreign and domestic investment bias in global bond markets: Some empirical evidence

In this paper, we define foreign (domestic) bias as the deviation of foreign (domestic) investors’ actual portfolio allocation in a bond market from the same bond market’s weight in global bond market. We investigate the determinants of foreign and domestic investment bias in 41 global bond markets. Our evidence indicates that foreign investors significantly overweigh markets that offer better risk-return profiles. Such return driven behavior of foreign investors is especially pronounced in emerging bond markets. Foreign investors are also found to avoid volatility in highly controlled bond markets. Our evidence sheds some light on the importance of improving investor profile in emerging markets.

ІНДИКАТОРИ РОЗВИТКУ ФОНДОВИХ РИНКІВ ТА ВИКЛИКИ ДЛЯ УКРАЇНИ

Стаття присвячена аналізу основних світових індикаторів кон’юнктури фондових ринків у взаємозв’язку із сучасними особливостями розвитку фондового ринку України. За результатами аналізу провідних фондових індексів країн виявлені сучасні тенденції в розвитку світових фондових ринків і фондового ринку України на сучасному етапі. Встановлено, що в умовах змінного сучасного середовища існують виклики, які формують цінові аномалії в розвитку фондових ринків, та обґрунтовано можливості подальшого розвитку фондового ринку України

The Impact of Foreign Investors on the Stock Price of Korean Enterprises during the Global Financial Crisis

This paper investigates the impact and behavior of foreign equity investment on the price of the nine largest KOSPI (Korea Composite Stock Price Index) enterprises and Samsung Electronics preference stocks in terms of market capitalization during the global financial crisis (2 January 2007 to 30 December 2008). The empirical results indicate that foreign investors show strong, positive feedback trading behavior with regard to the stock price of Samsung Electronics, which is the largest KOSPI enterprise in terms of market capitalization. We also found evidence that the behavior of foreign investors significantly increased volatility in the stock returns of the two largest Korean conglomerates (Samsung Electronics and Hyundai Motors), which account for approximately 25 percent of total KOSPI market capitalization.

The impact of the sanctions regime on foreign direct investments in Russia

The economic and political sanctions had a significant impact on the behavior of foreign investors in the real sector of the Russian economy in the period 2014-2017. Despite a significant outflow of foreign direct investment (FDI) in 2015, in 2016-2017, there was an increase in investment activity associated with a steady inflow of FDI, which could be explained by the change in investment strategies of foreign business in Russia. The purpose of the study. The article assesses the impact of Western sanctions and Russian countersanctions on the influx of foreign direct investment into Russia. Methods. The work is based on methods of statistical analysis of the behavior of foreign investors in Russia on the basis of macroeconomic data of the Central Bank of Russia and microeconomic data of the “Ruslana” database. Results. The author gives various assessments of sanctions and counter-sanctions impact on the Russian and European economies, and compares the effects of sanctions policies in Russia and Iran. The stylized facts, identified by the author at the micro level, allow to interpret the macro statistics provided by the Central Bank of Russia at a qualitative level. The conclusion . In conclusion, the author gives recommendations on the possibilities of using new mechanisms of interaction with international institutions to overcome the investment crisis as a consequence of the sanctions regime.

Behavior of foreign investors in the Malaysian stock market in times of crisis: A nonlinear approach

This study investigates the response to crisis of foreign investors versus domestic investors in the Malaysian stock market. The econometric-modeling involves a nonlinear approach which allows for investor responses to differ in up and down markets. Specifically, the smooth-transition autoregressive (STAR-STGARCH) family of models and generalized impulse response function (GIRF) analysis are employed. The 1997 Asian Crisis is analyzed using daily data for the period 1995–2003, and the 2008 Global Financial Crisis for a period extended to 2015 with allowance for structural breaks. The results indicate that foreign investors exhibited herding behavior during the Asian Crisis and responded to the shock more quickly than domestic investors, but that foreigners did not act differently from their domestic counterparts during the Global Financial Crisis. These findings suggest that even as foreign capital flows may be desirable for economic growth, they can be unstable and may increase volatility during crises that are locally rooted.

Equity Investment by Global Funds: Return and Sovereign Risk

We examine the rate of return earned by global funds on equity investment in emerging markets (EMs) particularly the role played by sovereign credit risk. Changes in sovereign credit ratings (upgrades/downgrades) influence excess (over risk free rate) returns earned by foreign investors: lower excess returns are associated with lower risk. The effect of credit upgrades and downgrades, however, is not symmetric. By contrast, credit outlook or credit watch announcements do not seem to influence foreign investors’ excess returns. When it comes to abnormal (risk-adjusted) returns, foreign investors treat the information contained in credit rating announcements differently from that in outlook/watch announcements. The differing effect of these two is not evident for the risk-adjusted returns of domestic stock market indexes. There is evidence, however, that the behavior of foreign investors influences significantly the risk-adjusted returns of EM stock market indexes.