Who Knows Better in an Emerging Market? The Performance of Institutions, Foreigners and Individuals

44 Pages Posted: 24 Feb 2016 Last revised: 29 Dec 2016

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

James Byder

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

Paula Yepes

Universidad EAFIT

Date Written: December 9, 2016

Abstract

This paper examines the performance of Institutions, Foreigners and Individuals in Emerging Markets. We find that Local institutions produce better outcomes than both foreigners and local individuals on all performance measures. Comparing local individuals with foreigners we find that local individuals perform better on trading execution, while foreigners generate better long term returns. Our results reconcile previously reported differences within the international finance literature on who invests better in an emerging market. Our study makes use of two unique databases of Colombian stocks and acts as out-of-sample test of previous findings. Moreover, we provide evidence that the better performance of Institutions is driven by information advantages.

Keywords: Institutional investor, foreign investors, individual investors, Informed trading, bid-ask spread decomposition

JEL Classification: G14, G15, D82

Suggested Citation

Agudelo, Diego A. and Byder, James and Yepes, Paula, Who Knows Better in an Emerging Market? The Performance of Institutions, Foreigners and Individuals (December 9, 2016). Center for Research in Economics and Finance (CIEF), Working Papers, No. 15-25, Available at SSRN: https://ssrn.com/abstract=2736542 or http://dx.doi.org/10.2139/ssrn.2736542

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

James Byder

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

Carrera 49 No. 7 South - 50
Bogotá
Colombia

Paula Yepes

Universidad EAFIT ( email )

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

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