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

40 Pages Posted: 11 Aug 2000 Last revised: 15 Sep 2021

See all articles by Hyuk Choe

Hyuk Choe

Seoul National University - College of Business Administration

Bong-Chan Kho

Seoul National University, Business School

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: July 1998

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.

Suggested Citation

Choe, Hyuk and Kho, Bong-Chan and Stulz, Rene M., Do Foreign Investors Destabilize Stock Markets? the Korean Experience in 1997 (July 1998). NBER Working Paper No. w6661, Available at SSRN: https://ssrn.com/abstract=226355

Hyuk Choe (Contact Author)

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)
822-880 8257 (Phone)
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Bong-Chan Kho

Seoul National University, Business School ( email )

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Korea, Republic of (South Korea)
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Rene M. Stulz

Ohio State University (OSU) - Department of Finance ( email )

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United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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