The contribution of foreign investors to price discovery in the Indonesian stock exchange
Document Type
Journal Article
Publisher
World Scientific Publishing Co. Pte. Ltd.
Faculty
Faculty of Business and Law
School
School of Business / Marketing and Services Research Centre
RAS ID
16976
Abstract
This article examines the contribution of foreign investors to price discovery by applying a vector error correction model (VECM) to 30 frequently-traded stocks on the Indonesia Stock Exchange. We use the Lee and Ready (1991) rule to determine the initiator of a trade and compute the volume weighted average price (VWAP) for every 30 min interval during the period 2004–2006. There are three key findings. First, foreign investors are more aggressive than local investors in placing their orders yet foreigners do not trade as often as locals. Second, the profits of foreign investors are smaller than local investors. Third, foreign investors need to adjust their trade price at a higher magnitude to achieve price equilibrium, which indicates that the majority of price discovery occurs among local investors in the Indonesian market.
DOI
10.1142/S2010495213500085
Comments
Sudiman, J. , Allen, D. E., & Powell, R. (2013). The Contribution of Foreign Investors to Price Discovery in the Indonesian Stock Exchange . Annals of Financial Economics, 8(2). Available here