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

See all articles by Kuan-Hui Lee

Kuan-Hui Lee

Seoul National University Business School

Shu-Feng Wang

National Central University, Department of Finance; Ajou University - Department of Business Administration

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

Lee, Kuan-Hui and Wang, Shu-Feng, Do Foreign Short-Sellers Predict Stock Returns? Evidence from Daily Short-Selling in Korean Stock Market (January 26, 2015). Pacific-Basin Finance Journal 32, 56-75, 2015, Available at SSRN: https://ssrn.com/abstract=2425551 or http://dx.doi.org/10.2139/ssrn.2425551

Kuan-Hui Lee (Contact Author)

Seoul National University Business School ( email )

703 LG-bldg, Business School,
Seoul National Univ., 1 Kwanak-Ro, Kwanak-Gu
Seoul, 151-916
Korea, Republic of (South Korea)
+82 2 880-6924 (Phone)

HOME PAGE: http://sites.google.com/site/kuanlee70/

Shu-Feng Wang

National Central University, Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan
886-3-4227151 # 66261 (Phone)

Ajou University - Department of Business Administration ( email )

206 Worldcup-ro
Yeongtong-gu
Suwon, 443-749
Korea, Republic of (South Korea)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
99
Abstract Views
681
Rank
480,390
PlumX Metrics