This presentation by Ingomar Krohn (Bank of Canada) is on foreign investor trading in an emerging market. Emerging economy financial markets have experienced a surge in cross-border capital inflows following the Global Financial Crisis and favourable global liquidity conditions have interacted with improving local conditions to drive this trend. Due to data limitations, research that can leverage the precision of market microstructure to study the effects of foreign investor participation in local financial markets is scant.
Previous research provides mixed evidence concerning the impact of foreign investors on local financial markets. It largely focuses on one market segment (mostly equity), and data is sourced from a single platform or brokerage firm.
This research leverages a new regulatory dataset on trading dynamics in Thailand’s financial market. This includes the buy- and sell transactions in foreign exchange, equity, and fixed income markets as well as trading identifiers for different groups of market participants. It is free of any reporting biases, and offers substantial time series coverage of the post-GFC period.
This research:
- re-assess the link between trading dynamics and returns
- explores differences between foreign and local investors, and
- examines trading motives of foreign investors
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