Do Domestic Investors Have an Information Advantage? Evidence from Indonesia

Using transaction data from the Jakarta Stock Exchange, I nd three pieces of evidence which indicate that domestic investors have an information advantage over foreign investors. First, foreign investors systematically buy at higher and sell at lower intra-day prices than domestic investors. Second, foreign investors tend to sell prior to large positive returns. Finally, the permanent impact of foreign purchases is smaller than that of domestic purchases. Over time, prices at which foreign investors trade have worsened, while foreign selling prior to positive returns has disappeared. * I am grateful to Ernest Lui for his excellent research assistance, Irmawatti Imran and Kris Yarismal from the Jakarta Stock Exchange for their help in providing data and answering numerous questions, and Ang Eng Guan from AFX News for providing me with the news data.