Foreign Portfolio Investors Before and During a Crisis

Abstract

Using a unique data set, we study the trading behavior of foreign portfolio investors in Korea before and during the currency crisis. The central message is that investors in different categories have different trading patterns. For example, foreign investors outside Korea are more likely to engage in positive feedback trading strategies and are more likely to engage in herding than the branches/subsidiaries of foreign institutions in Korea or foreign individuals living in Korea. This difference in trading behavior is possibly related to the difference in their information. This paper suggests that it may be worth exploring policies that can encourage foreign investors to acquire more information (e.g. by setting up a branch or a subsidiary in the emerging country).

JEL Codes: F21; F3; G15

Single copies of the article can be downloaded and printed for the reader’s personal research and study. Reprinted from the Journal of International Economics, vol.56, no.1, Woochan Kim and Shang-Jin Wei, “Foreign Portfolio Investors Before and During a Crisis,” Pages 77-96, Copyright (2002), with permission from Elsevier Science.