Do Foreign Investors Underperform or Outperform Domestic Investors in Trading Activities? Evidence from Indonesia

Deddy P. Koesrindartoto, Aurelius Aaron () and Shuqi Wang
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Deddy P. Koesrindartoto: School of Business and Management, Institut Teknologi Bandung, Jl. Ganesha 10, Bandung 40132, Indonesia
Aurelius Aaron: School of Accounting and Finance, The Hong Kong Polytechnic University, 11 Yuk Choi Rd, Kowloon, Hong Kong
Shuqi Wang: Department of Economics and Finance, University of Stavanger, Kjell Arholms Gate 41, 4021 Stavanger, Norway

IJFS, 2024, vol. 12, issue 4, 1-11

Abstract: The performance of foreign investors relative to domestic investors has been a subject of mixed evidence. While foreign investors are often perceived to underperform due to an information disadvantage, they are also known for their aggressive trading and superior performance in initiated orders. We provide further clarity on this issue. Specifically, by analyzing over five million transactions on the Jakarta Stock Exchange, our findings reveal that foreign investors consistently outperform domestic investors in terms of both annualized returns and profit amounts. Further investigation attributes this outperformance to the higher sophistication of foreign investors, who demonstrate superior stock-picking abilities and effective growth investing strategies.

Keywords: trading performance; trading activity; foreign investor; domestic investor; investor’s sophistication level; Indonesian stock market (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
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