Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea

Posted: 29 Feb 2008 Last revised: 21 Dec 2010

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 3 versions of this paper

Date Written: 2005

Abstract

We investigate whether domestic investors have an edge over foreign investors in trading domestic stocks. Using Korean data, we show that foreign money managers pay more than domestic money managers when they buy and receive less when they sell for medium and large trades. The sample average daily trade-weighted disadvantage of foreign money managers is 21 basis points for purchases and 16 basis points for sales. There is also some evidence that domestic individual investors have an edge over foreign investors. The explanation for these results is that prices move more against foreign investors than against domestic investors before trades.

Keywords: Foreign investor, Trading edge, Information advantage, Permanent and temporary impact, volume-weighted average price

JEL Classification: G11, G15, G28

Suggested Citation

Choe, Hyuk and Kho, Bong-Chan and Stulz, Rene M., Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea (2005). The Review of Financial Studies, Vol. 18, No. 3, pp. 795-829, 2005, Available at SSRN: https://ssrn.com/abstract=900698

Hyuk Choe

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)
822-880 8257 (Phone)
822-882 0547 (Fax)

Bong-Chan Kho

Seoul National University, Business School ( email )

607 LG Hall
1 Gwanak-ro, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)
+82-2-880-8798 (Phone)
+82-2-876-8411 (Fax)

Rene M. Stulz (Contact Author)

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

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Columbus, OH 43210-1144
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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Belgium

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