 Foreign ownership and stock market liquidityJieun Lee and Kee H. Chung International Review of Economics & Finance, 2018, vol. 54, issue C, 311-325 Abstract: In this study we analyze how the price impact of trades and the bid-ask spread are related to foreign stock ownership using data from 20 emerging markets. We show that while the price impact of trades increases with the percentage of shares held by foreign investors, the bid-ask spread decreases with foreign ownership. We interpret these results as evidence that although foreign investors increase adverse selection risks for liquidity providers, they bring net benefit to the market in terms of lower trading costs by increasing competition in the price discovery process. The general increase in foreign ownership in emerging markets after the global financial crisis resulted in higher price impacts and lower spreads. The two-stage least squares regression analysis suggests that our results are unlikely to be driven by reverse causality. Keywords: Foreign investors; Information asymmetry; Price impact; Spread; Adverse selection component; Non-information cost of trading; Illiquidity; G15; G18; G34; G38 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:54:y:2018:i:c:p:311-325 DOI: 10.1016/j.iref.2017.10.007 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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