Law, culture and investment performance: A cross-country analysis

This study investigates the investment performance of U.S. investors in foreign equity markets with different law origins and cultural characteristics and the investment performance of foreign investors in the U.S. markets. The finding is consistent with the information asymmetric hypothesis that investors perform better in foreign countries which have a similar legal system and cultural characteristics to their home markets than in counterparty countries. Differences in country-specific factors create information asymmetric barriers which slow information flow and result into poor investment performance.Law Culture Investment performance Information asymmetry

The Behavior and Performance of Foreign Investors in Emerging Equity Markets: Evidence from Taiwan

This study investigates trading behavior and investment performance of foreign investors in 60 large-size firms listed on the Taiwan Stock Exchange. Strong evidence is found that foreign investors employ momentum strategies of buying past winners and selling past losers and favor large-size, high book-to-market, and high-tech stocks, while no evidence is found that foreign investors herd on market consensus. Findings show that foreign investors are short-term superior performers but long-term inferior performers. The short-term superior performance appears to be driven partially by price momentum of winners portfolios rather than by risk taking. After controlling for firm size, share turnover, and industry, foreigners' short-term performance in large-size, high-turnover, and high-tech stocks is better than it is in small-size, low-turnover, and non-high-tech stocks. Copyright (c) International Review of Finance Ltd. 2003.

Foreigners' perceptions of U.S. markets: Do foreigners exhibit herding tendencies?

This paper investigates the herding behaviors and investment performance of foreign investors in the U.S. market. Little evidence is found of foreigners' herding behavior within one time period. However, there is strong evidence that foreign investors follow their past behavior into and out of the U.S. market over adjacent months. Foreigners' buy-side behavior of buying U.S. equities as a group is positively related to past high returns in the U.S. market and this buy-side behavior leads to superior investment performance. Evidence shows that independent of whether the U.S. market is up or down, foreign investors continue to increase their holdings of U.S. equities and these purchasing activities result in superior performance. When the U.S. market experiences extreme ups and downs, foreigners are net purchasers one month before and after the market moves and, in general, they perform well.