Do Foreign Investors Destabilize Stock Markets? The Korean Experience in 1997

Hyuk Choe, Bong-Chan Kho and René Stulz

No 6661, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the impact of foreign investors on stock returns in Korea from November 30, 1996, to the end of 1997 using trade data. We find strong evidence of positive feedback trading and herding by foreign investors before the period of Korea's economic crisis during the last three months of 1997. The evidence of herding becomes weaker during the crisis period and positive feedback trading by foreign investors disappears. We find no evidence that trades by foreign investors had a destabilizing effect on Korea's stock market over our sample period. In particular, the market adjusted quickly and efficiently to large sales by foreign investors and these sales were not followed by negative abnormal returns amplifying their impact.

JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 1998-07
New Economics Papers: this item is included in nep-ifn
Note: CF
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Citations: View citations in EconPapers (18)

Published as Journal of Financial Economics, Vol. 54, no. 2 (October 1999): 227-264.

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Journal Article: Do foreign investors destabilize stock markets? The Korean experience in 1997 (1999)
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