Do Foreign Short-Sellers Predict Stock Returns? Evidence from Daily Short-Selling in Korean Stock Market
Pacific-Basin Finance Journal 32, 56-75, 2015
39 Pages Posted: 19 Apr 2014 Last revised: 16 Feb 2017
Date Written: January 26, 2015
Abstract
We investigate the daily short-selling by foreign investors and their impact on stock price, liquidity, and volatility in the Korean stock market. From January 1, 2006 to May 31, 2010, we find that the majority of short-selling is performed by foreign, rather than by domestic, investors and that foreign short-sellers are contrarians, whose large short-selling predicts short-run future return. We also find that foreign investors’ short-selling is performed when buying-pressure is high, but does not improve stock liquidity. Furthermore, we find that foreign investors’ short-selling does not increase volatility, providing evidence against the foreign investors’ destabilizing role in emerging markets.
Keywords: short-selling; foreign investor; emerging market; Korean stock market
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation