NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Hyuk Choe, Bong-Chan Kho, Rene M. Stulz

NBER Working Paper No. 6661
Issued in July 1998
NBER Program(s):   CF

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.

download in pdf format
   (193 K)

email paper

A non-technical summary of this paper is available in the October 1998 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (193 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6661

Published: Journal of Financial Economics, Vol. 54, no. 2 (October 1999): 227-264.

Users who downloaded this paper also downloaded these:
Kim and Wei w6968 Foreign Portfolio Investors Before and During a Crisis
Bekaert, Harvey, and Lumsdaine w7219 The Dynamics of Emerging Market Equity Flows
Froot, G.J. O'Connell, and Seasholes w6687 The Portfolio Flows of International Investors, I
Karolyi and Stulz w8994 Are Financial Assets Priced Locally or Globally?
Choe, Kho, and Stulz w10502 Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us