Friend or Foe? Foreign Investors and the Liquidity of Six Asian Markets

38 Pages Posted: 23 Apr 2014

See all articles by Diego A. Agudelo

Diego A. Agudelo

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF); Universidad EAFIT

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

Agudelo, Diego A., Friend or Foe? Foreign Investors and the Liquidity of Six Asian Markets (August 15, 2010). Center for Research in Economics and Finance (CIEF), Working Papers, No. 10-07, Available at SSRN: https://ssrn.com/abstract=2427495 or http://dx.doi.org/10.2139/ssrn.2427495

Diego A. Agudelo (Contact Author)

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF) ( email )

Carrera 49 No. 7 South - 50
Bogotá
Colombia

Universidad EAFIT ( email )

Carrera 49 N° 7 sur – 50
Bogotá, Antioquia 00000
Colombia

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