Foreign equity trading and average stock-return volatility

Date
2013
Advisor
Instructor
Source Title
World Economy
Print ISSN
0378-5920
Electronic ISSN
Publisher
Wiley-Blackwell Publishing
Volume
36
Issue
9
Pages
1209 - 1228
Language
English
Type
Article
Journal Title
Journal ISSN
Volume Title
Abstract

We examine whether there is a relationship between foreign equity trading and average total volatility, measured as the value-weighted average of stock-return variance in the Istanbul Stock Exchange. We employ foreign equity purchase and sale data to track changes in foreign equity trading, which not only enable us to capture effective foreign investor participation but also to observe the potential asymmetric effects of incoming and outgoing funds on the average total volatility. Consistent with the implications of the asymmetric information hypothesis, we find that net equity flow is positively associated with average total volatility. Furthermore, we show that net equity flow affects the average total volatility through the local and idiosyncratic volatilities, suggesting that foreign investors engage in the production of firm specific and market wide information.

Course
Other identifiers
Book Title
Keywords
Capital flow, Equity, Foreign direct investment, Hypothesis testing, Industrial investment, Investment location, Stock market, Turkey
Citation
Published Version (Please cite this version)