Working Paper: NBER ID: w10502
Authors: Hyuk Choe; Bongchan Kho; Ren M. Stulz
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 of 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: No keywords provided
JEL Codes: F36; G12; G14; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign money managers (G15) | Pay more than domestic money managers when buying stocks (G19) |
| Foreign money managers (G15) | Receive less than domestic money managers when selling stocks (G19) |
| Foreign investors (F21) | Face greater transaction costs than domestic investors (G15) |
| Prices moving against foreign investors (F31) | Greater disadvantage for foreign investors (F21) |
| Domestic individual investors (G23) | Have an edge over foreign investors (F23) |
| Disadvantage of foreign investors (F23) | Cannot be attributed to firm and stock characteristics (G39) |