Friend or Foe? Foreign Investors and the Liquidity of Six Asian Markets
38 Pages Posted: 23 Apr 2014
Date Written: August 15, 2010
Abstract
Studying Foreign flows and the liquidity of six Asian markets we provide evidence of two empirical regularities: On the one hand, foreign trade has a negative but transitory impact on the overall liquidity of the market on a daily basis. This finding is shown consistent with two hypotheses: that foreign investors demand liquidity more aggressively than locals, and, to a lesser extent, that foreigners incorporate market-wide information. On the other hand, the overall share of foreign ownership in the market is positively related to improved liquidity, as shown in a sample of emerging markets, after controlling for a set of confounding factors. Overall, the results portray foreign investors as aggressive liquidity demanding, and nevertheless having a positive effect on the liquidity in short horizons.
Keywords: Liquiduty, markets, demand
JEL Classification: G11
Suggested Citation: Suggested Citation
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