Foreign Ownership and Commonality in Liquidity Between FX and Stock Markets (in Korean)

Junhan Kim () and Jieun Lee ()
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Junhan Kim: Research Department, The Bank of Korea
Jieun Lee: Financial & Monetary Economics Team, Economic Research Institute, The Bank of Korea

No 2014-18, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper studies the role of foreign investors in commonality between FX market liquidity and stock market liquidity. In the wake of Global Financial Crisis, emerging market economies, including Korea, have seen rising volatility in short-term capital flows and exchange rates leading to domestic financial market instability. Focusing on the common movement of liquidity and the role foreign investors play, we examine whether commonality in liquidity exists between FX and stock markets, and how foreign investors have an impact on the commonality. The results show that commonality in liquidity between FX and stock markets exists and foreign investors drive down the commonality in liquidity. This implies that the source of commonality may not be investors' behavior, but rather other factors, such as macroeconomic news or shocks in the global financial markets.

Keywords: Commonality in liquidity; Foreign ownership; FX liquidity; Stock Liquidity (search for similar items in EconPapers)
JEL-codes: G10 G14 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-07-16
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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1418

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