Herding by foreign investors and emerging market equity returns: Evidence from Korea

Jin Q. Jeon, Clay M. Moffett

Research output: Contribution to journalArticlepeer-review

57 Scopus citations

Abstract

This paper studies the effect of herding by foreign investors on stock returns in the Korean market. We conduct both pre and post-liberalization analyses and utilize a three-stage least squares analysis in order to control for the simultaneous relationship. We find evidence of a significant impact of foreign investor herding on stock returns in addition to intra-year positive feedback trading by foreign investors. However, changes in domestic institutional ownership do not have any significant effect on stock returns. In addition, foreign investors tend to buy/sell shares that domestic institutions sell/buy in the herding year.

Original languageEnglish
Pages (from-to)698-710
Number of pages13
JournalInternational Review of Economics and Finance
Volume19
Issue number4
DOIs
StatePublished - Oct 2010

Keywords

  • Emerging markets
  • Feedback trading
  • Foreign investment
  • Herding

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