NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Domestic Investors Have More Valuable Information About Individual Stocks Than Foreign Investors?

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

NBER Working Paper No. 8073
Issued in January 2001
NBER Program(s):AP, IFM

Using trade data from Korea from December 1996 to November 1998, we find evidence that domestic individual investors have a short-lived private information advantage for individual stocks over foreign investors, but almost no evidence that domestic institutional investors have such an advantage. Foreign investors trade at worse prices than resident investors for large trades, for smaller stocks, and more so for sales than for purchases. Foreign investors sell to domestic investors before a stock has a large positive abnormal return and buy from domestic investors before a stock has a large negative abnormal return. Using intraday data, the large trades of domestic individual investors have more information than the large trades of foreign investors or of domestic institutional investors.

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Document Object Identifier (DOI): 10.3386/w8073

Published: Choe, Hyuk, Bong-Chan Kho, and Rene M. Stulz. “Do Domestic Investors have an Edge? The Trading Experience of Foreign Investors in Korea." Review of Financial Studies 18, 3 (2005): 795-829.

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