Foreign Trading and Market Volatility in Indonesia

Download or read book Foreign Trading and Market Volatility in Indonesia written by Jian-Xin Wang and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides evidence on the benefits and potential risks associated with foreign equity investment. The market volatility in Indonesia is examined in relation to different types of transactions by foreign and local investors. Foreign selling has a significant impact on market volatility throughout the sample period, even though foreign investors are net buyers of Indonesian stocks and foreign selling accounts for only 13% of daily trading. On the other hand, transactions among foreign investors account for 26% of daily trading but do not affect local market volatility. The large orders placed by foreign institutional investors improve local market depth and liquidity. The results clearly demonstrate that different types of transactions have different impact on market volatility, and using aggregate foreign flows or net foreign flows may produce biased results.