International Fund Flows and Anomalies in Asian Stock Markets

Abstract

This research examines the influence of foreign fund flows on the returns and trade value of emerging stock markets in Indonesia, South Korea, Taiwan and Thailand from 2009 to 2020. The selected sampling period reflects the massive capital created by the quantitative easing (QE) policies of all major central banks worldwide following the global financial crisis (GFC) of 2007–08 and in response to the outbreak of the COVID-19 pandemic. The methodology employed includes the ordinary least squares (OLS) model with lagged variables and the vector autoregressive (VAR) model to control the lag of the endogenous variables. It was found that foreign investors have superior information over domestic investors. Foreign fund flows directly influence the returns of all markets and the trading value in some markets. The inverse relationship between foreign fund flows and market volatility implies that foreign flows promote the efficiency of these markets.