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Sophistication and price impact of foreign investors in the Brazilian stock market

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  • Gonçalves, Walter
  • Eid, William
Abstract
The purposes of this paper are to investigate the informational sophistication of foreign investors in the Brazilian stock market and to assess the price impact on local securities generated by the trading conducted by these agents. As a first finding, these agents exhibit positive and significant responses to past returns, supporting the trend-chasing hypothesis. Additionally, the results indicate a positive and significant influence of these investors on domestic price discovery, an effect that is amplified in magnitude by crisis scenarios. All these findings, combined with the fact that these agents sporadically herd, classify foreign investors as potential local price destabilizers.

Suggested Citation

  • Gonçalves, Walter & Eid, William, 2017. "Sophistication and price impact of foreign investors in the Brazilian stock market," Emerging Markets Review, Elsevier, vol. 33(C), pages 102-139.
    • Handle: RePEc:eee:ememar:v:33:y:2017:i:c:p:102-139
    DOI: 10.1016/j.ememar.2017.09.006
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    More about this item

    Keywords

    Foreign investment; Trend chasing; Positive feedback trading; Destabilization of prices; Market efficiency; International finance;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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