Do foreign institutional investors improve price efficiency?
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Accepted version
Author(s)
Kacperczyk, M
Sundaresan, S
Wang, T
Type
Journal Article
Abstract
We study the impact of foreign institutional investors on price efficiency withfirm-level international data. Using MSCI index inclusion and the U.S. Jobsand Growth Tax Relief Reconciliation Act as exogenous shocks to foreignownership, we show that greater foreign ownership increases stock priceinformativeness, especially in developed economies. This increase arises fromnew information that foreign investors bring in, and displacement of lessinformed domestic retail investors. Finally, we show that foreign ownership,particularly from active investors, increases market liquidity, reduces firms’cost of equity, and increases firms’ real investment growth. (JELG11, G12,G14, G15)
Date Issued
2021-03-01
Date Acceptance
2020-04-18
ISSN
0893-9454
Publisher
Oxford University Press (OUP)
Start Page
1317
End Page
1367
Journal / Book Title
The Review of Financial Studies
Volume
34
Issue
3
Copyright Statement
© The Author(s) 2020. Published by Oxford University Press on behalf of The Society for Financial Studies. This is a pre-copy-editing, author-produced version of an article accepted for publication in the Review of Financial Studies following peer review. The definitive publisher-authenticated version is available online at: https://doi.org/10.1093/rfs/hhaa076.
Identifier
https://academic.oup.com/rfs/advance-article/doi/10.1093/rfs/hhaa076/5866988
Subjects
1401 Economic Theory
1402 Applied Economics
1502 Banking, Finance and Investment
Finance
Publication Status
Published
Date Publish Online
2020-07-03