Why do foreign investors underperform domestic investors in trading activities? Evidence from Indonesia
نویسندگان
چکیده
Foreign investors generally underperform domestic investors in trading activities. This study shows that their inferior performance is attributable to non-initiated orders. Foreign investors actually perform better than domestic investors in initiated orders. In addition, their performance is also mixed when trades are classified depending on who the counterparties are. These mixed performances can be explained by neither the information disadvantage hypothesis proposed by [Dvořák, T., 2005. Do domestic investors have an information advantage? Evidence from Indonesia. Journal of Finance 60, 817–839.] nor the poor timing of trade hypothesis suggested by [Choe, H., Kho, B.C., Stulz, R., 2005. Do domestic investors have an edge? The trading experience of foreign investors in Korea. Review of Financial Studies 18, 795–829.]. We propose and confirm that their inferior performance is explained by their aggressive trading behavior. Three metrics we utilize to see front matter r 2008 Elsevier B.V. All rights reserved. .finmar.2008.04.001 ld like to thank Avanidhar Subrahmanyam (the editor), the referee, and seminar participants at the ck Exchange, Renmin University of China, as well as the 2005 and 2007 annual meetings of the nagement Association International. The views expressed are those of the authors alone and do not present those of the Federal Reserve Bank of Chicago. nding author. Tel.: +1775 682 9179. dresses: [email protected] (S. Agarwal), [email protected] (S. Faircloth), [email protected] [email protected] (S. Ghon Rhee). 12 322 5973. 75 682 9178. 08 956 2535. this article as: Agarwal, S., et al., Why do foreign investors underperform domestic investors in ivities? Evidence from.... Journal of Financial Markets (2008), doi:10.1016/j.finmar.2008.04.001
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