Abstract
Foreign (equity portfolio) investors have been characterized as return chasers in both empirical and theoretical literature. Using 1996-1998 investor trading data from Korea, Choe et al. (2005) documented that foreign investors trade at disadvantaged prices, because they trade after prices have moved against them.
Using a 2004-2015 sample of the Korean data, we show that these established facts have changed: Foreigners do not any longer trade after prices have moved against them and are no longer disadvantaged; they trade at more favorable prices compared with domestic institutions. We document an essentially-monotonic evolution of foreign investor trading behavior over time, from return chasing toward well-timed negative feedback trading, which parallels the improvement in their trading prices.
Using marketwide-level foreign investor trading data available from around the world, we show that foreigners' shift away from positive feedback trading is a pervasive phenomenon. These findings imply a major empirical update on foreign investor trading behavior.