In this paper we investigate whether foreign investors are informed through short-selling by foreign investors in Korean financial market. To the best of our knowledge, this is the first study that investigates the issue from the perspective of short-sales of foreign investors. For the sample period of 2006:01:01-2009:08:31, we find that larger portion of short-selling is performed by foreign investors than by domestic investors in Korean market. Consistent to Diether, Lee, and Werner (2009) for US market, we also find that foreign short-sellers increases short-selling when the stock’s past performance was positive. This finding adds to the literature that foreign investors’ trading does not destabilize the market and, contrary to the previous literature that shows foreign investors’ trading strategy is based on momentum trading, shows that the foreign short-sellers’ trading strategy is different. We also find that foreign short-sellers perform a role as liquidity providers. Interestingly, we find that foreign short-selling does not predict future returns, contrary to Diether, Lee, and Werner (2009). However, this is consistent to the literature that argues that foreign investors are less informed relative to domestic investors (Dvorak, 2005; Choe, Kho, and Stulz, 2005).
Keywords: foreign investor; short-selling; Korean stock market
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공지사항
[2011년 제 3차] Are Foreign Short-Sellers Informed? Evidence from K
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2011-08-22
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