Trading 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.

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.

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.

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).

Foreign Investors’ Trading Behavior in Response to Crises: Evidence from Thailand

This paper examines the trading behavior of foreign investors in Thailand and its impact on the country’s stock market and currency value during January 1, 1975 to August 31, 2009. We also investigate if the trading strategy of foreigners has changed during the 1997 financial crisis, 2004 Tsunami crisis, and 2006 and 2008 political crisis. For the entire sample period, foreign investors were the net purchaser of Thai equity and implemented positive feed-back investment trading strategy, while domestic investors were the net sellers with a contrarian investment strategy. The trading behaviors of foreign investors do not change during the financial and tsunami turmoil and 2006 political upheaval in Thailand. These crises do not scare foreign investors out of Thailand. It was the trading activities of domestic individual investors that destabilized the stock market of Thailand during the 1997 Asian financial crisis. The trading activities of all investors cause a major destabilizing effect on Thai equity during the 2008 political crisis, particularly individual investors exert the strongest destabilizing effect. There is no evidence of price-destabilizing effect during the 2004 Tsunami crisis. The trading activities of domestic individual and institutional investors do not cause any destabilizing effect on Baht currency value caused by the trading activities of domestic individual and institutional investors were not found in any of the financial, tsunami, and political crises. Only did the trading activities of foreigners cause the baht to devalue during the 1997 Asian financial crisis.

Structural changes in foreign investors’ trading behavior and the corresponding impact on Taiwan's stock market

This study investigates the impact of the expected and unexpected trading behavior of foreign investors on return volatilities during structural change periods. And the jump intensity model pinpoints crucial events that have influenced the stock market. The empirical results find that there has been a stabilizing effect of foreign investment on Taiwan's stock market as restrictions on foreign trading have been gradually relaxed, as opposed to there being a complete relaxation of the restrictions imposed on Qualified Foreign Institutional Investors (QFIIs).