Do Domestic Investors Have More Valuable Information about Individual Stocks Than Foreign Investors?Using trade data from Korea from December 1996 to November 1998, we find evidence that domestic individual investors have a short-lived private information advantage for individual stocks over foreign investors, but almost no evidence that domestic institutional investors have such an advantage. Foreign investors trade at worse prices than resident investors for large trades, for smaller stocks, and more so for sales than for purchases. Foreign investors sell to domestic investors before a stock has a large positive abnormal return and buy from domestic investors before a stock has a large negative abnormal return. Using intraday data, the large trades of domestic individual investors have more information than the large trades of foreign investors or of domestic institutional investors. |
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absolute value buy and sell Buy B/A t-stat Buy proportion Difference of Buy Difference of Sell domestic and foreign domestic individual investors domestic institutional investors domestic investors domestic money managers event day Financial Economics foreign banks foreign investors buy foreign investors trade foreign money managers foreign ownership higher prices home bias insider trading interval intraday investor type Korea Stock Exchange KOSPI large negative abnormal large positive abnormal large trades Market-adj ret Mean-adj Mean-adj Raw ret Mean-adj ret Cumulative mean-adjusted return median trade val Merchant banks Michael Woodford NBER Working Papers negative abnormal return net-sell imbalances normalized order-imbalances Panel Pension funds permanent effect permanent price impact positive abnormal return prices than domestic private information advantage Raw ret Mean-adj ret Mean-adj ret sample period Sell B/A Seoul National University small trades stock price stocks per day Stulz Table trade val 000 trades by domestic trading volume various investor classes