The Behavior and Performance of Foreign Investors in Emerging Equity Markets: Evidence from Taiwan

• Published in: International Review of Finance Vol. 4; no. 3; pp. 189 - 210
• Main Authors: Swanson, Peggy E, Lin, Anchor Y
• Format: Journal Article
• Language: English
• Published: International Review of Finance Ltd 01.09.2003
• Series: International Review of Finance
• ISSN: 1369-412X
• DOI: 10.1111/j.1468-2443.2005.00046.x

This study investigates trading behavior and investment performance of foreign investors in 60 large-size firms listed on the Taiwan Stock Exchange. Strong evidence is found that foreign investors employ momentum strategies of buying past winners and selling past losers and favor large-size, high book-to-market, and high-tech stocks, while no evidence is found that foreign investors herd on market consensus. Findings show that foreign investors are short-term superior performers but long-term inferior performers. The short-term superior performance appears to be driven partially by price momentum of winners portfolios rather than by risk taking. After controlling for firm size, share turnover, and industry, foreigners' short-term performance in large-size, high-turnover, and high-tech stocks is better than it is in small-size, low-turnover, and non-high-tech stocks. Copyright (c) International Review of Finance Ltd. 2003.