The impact of foreign trades on emerging market liquidity

Yessy Peranginangin; Akbar Z. Ali; Paul Brockman; Ralf Zurbruegg

doi:10.1016/j.pacfin.2016.07.002

The impact of foreign trades on emerging market liquidity

Yessy Peranginangin, Akbar Z. Ali, Paul Brockman, Ralf Zurbruegg

Malaysia Sch of Business

Research output: Contribution to journal › Article › Research › peer-review

14 Citations (Scopus)

Abstract

We examine the transmission mechanisms through which foreign trades affect commonality in liquidity in an emerging stock market. Trade-level data from the Indonesian Stock Exchange allow us to examine the impact of aggressive foreign trades on commonality in liquidity. Our results show that these trades contribute significantly to the price discovery process as well as to increasing commonality in liquidity. We find that the price discovery impact of aggressive foreign trading provides the mechanism through which foreign investor trading affects emerging market liquidity dynamics. Overall, our study shows that foreign investor trading is a double-edged sword.

Original language	English
Pages (from-to)	1-16
Number of pages	16
Journal	Pacific Basin Finance Journal
Volume	40
DOIs	https://doi.org/10.1016/j.pacfin.2016.07.002
Publication status	Published - Dec 2016

Keywords

Commonality in liquidity
Financial crisis
Foreign investors
Price discovery

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10.1016/j.pacfin.2016.07.002

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abstract = "We examine the transmission mechanisms through which foreign trades affect commonality in liquidity in an emerging stock market. Trade-level data from the Indonesian Stock Exchange allow us to examine the impact of aggressive foreign trades on commonality in liquidity. Our results show that these trades contribute significantly to the price discovery process as well as to increasing commonality in liquidity. We find that the price discovery impact of aggressive foreign trading provides the mechanism through which foreign investor trading affects emerging market liquidity dynamics. Overall, our study shows that foreign investor trading is a double-edged sword.",

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AB - We examine the transmission mechanisms through which foreign trades affect commonality in liquidity in an emerging stock market. Trade-level data from the Indonesian Stock Exchange allow us to examine the impact of aggressive foreign trades on commonality in liquidity. Our results show that these trades contribute significantly to the price discovery process as well as to increasing commonality in liquidity. We find that the price discovery impact of aggressive foreign trading provides the mechanism through which foreign investor trading affects emerging market liquidity dynamics. Overall, our study shows that foreign investor trading is a double-edged sword.

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KW - Financial crisis

KW - Foreign investors

KW - Price discovery

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The impact of foreign trades on emerging market liquidity

Abstract

Keywords

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