Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Institute for Financial Research SIFR Research Report Series, Institute for Financial Research

No 1:
Foreigners´ Trading and Price Effects Across Firms

Magnus Dahlquist () and Göran Robertsson ()

Abstract: We study the investment behavior of foreign investors in association with an equity market liberalization, and find a strong link between foreigners´ trading and local market returns. In the period following the liberalization, foreigners´ net purchases led to a permanent increase in prices, or equivalently, a permanent reduction of the cost of equity capital. We also find a strong link between a firm´s fraction of foreign ownership and the magnitude of the reduction of cost of capital. Foreign investors seem to prefer large and well-known forms, and these forms realize the most sizeable cuts in capital costs. Furthermore, our analysis suggests that foreigners act like non-informed feedback traders. In particular, they increase their net holding in firms that have recently perfoemd well. Analyzing foregners´ performance, we find very little evidence of informed trading, suggesting that risk sharing is the most plausible explanation for the reduction in the cost of equity capital.

Keywords: Feedback Trading; Momentum; Portfolio Flows; (follow links to similar papers)

JEL-Codes: G11; G12; G14; G15; (follow links to similar papers)

33 pages, December 15, 2001

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

drflow010925.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Anki Helmer ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:sifrwp:0001 This page was generated on 2014-12-14 19:26:48