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±ÝÀ¶¿¬±¸ (Online) ISSN 2714-0288 / (Print) ISSN 1225-9489
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÷ºÎÆÄÀÏ 30-1-02 Lingxia Sun(27-58).pdf (800.18 KB)
Foreign Equity Investors and Momentum Profits: Evidence from Korea

Lingxia Sun

¡ª Abstract ¡ª

This paper examines the trading behavior of foreigner equity investors and its impact on momentum
profits. The Korean stock market makes a good setting for this study because of its openness to
foreign investors and the availability of a rich dataset that records foreignners¡¯ holdings and trading
of each individual stock on a daily basis. Following Grinblatt and Keloharju (2000)¡¯s methodologies,
we find strong evidence of positive feedback trading by foreign investors for the period of 1999~2014.
We also find that momentum profits are more pronounced among stocks that undergo bigger increases
of foreigners¡¯ holdings. In addition, the big magnitude of momentum profits conditional on increases
of foreigners¡¯ holdings is not affected by stocks¡¯ attributes, such as market capitalization, book-to-market
ratio, beta, and turnover ratio. In our robustness checks, we construct momentum portfolios based
on firm-specific returns and also observe significant firm-specific momentum profits for those stocks
incurring increases in foreigners¡¯ holdings. Finally, we offer both risk- and behavior- based interpretations for our findings.

Keywords : Foreign Investors, Positive Feedback Trading, Momentum Profits

JEL Classification Number : G11, G12, G14, G15

 

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