The impact of foreign trades on emerging market liquidity

Yessy Peranginangin, Akbar Z. Ali, Paul Brockman and Ralf Zurbruegg

Pacific-Basin Finance Journal, 2016, vol. 40, issue PA, 1-16

Abstract: We examine the transmission mechanisms through which foreign trades affect commonality in liquidity in an emerging stock market. Trade-level data from the Indonesian Stock Exchange allow us to examine the impact of aggressive foreign trades on commonality in liquidity. Our results show that these trades contribute significantly to the price discovery process as well as to increasing commonality in liquidity. We find that the price discovery impact of aggressive foreign trading provides the mechanism through which foreign investor trading affects emerging market liquidity dynamics. Overall, our study shows that foreign investor trading is a double-edged sword.

Keywords: Commonality in liquidity; Price discovery; Foreign investors; Financial crisis (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:40:y:2016:i:pa:p:1-16

DOI: 10.1016/j.pacfin.2016.07.002

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