Foreign portfolio flows and emerging markets: lessons from Thailand

textEmerging markets are generally small and fairly illiquid. Thus, extreme price volatility is a matter of concern as a slight change in trading activity can assert significant pressure on prices. It comes as no surprise that the movement of foreign equity flows exert significant influences in emerging markets as they have tremendously increased over the last two decades subsequent to a general trend in continued liberalization around the world, especially in Asia Pacific. This research focuses on the effect of foreign flows on emerging market returns and addresses several empirical asset pricing issues in the Asia Pacific markets by using the data from the Thai stock exchange. The dissertation provides a quantitative assessment on the impact of foreign portfolio flows on the Thai equity market before, during, and after the Asian financial crisis. The study investigates the differential impact of foreign equity flows on the pricing and volatility of the aggregate market and of two market segments; one consisting of stocks that are favored by foreign investors and the other less favored. The empirical results reveal that the price pressure impact on the first segment is more positive. This finding corroborates with the fact that the flow betas which measure the exposure to unexpected foreign flows are mostly positive (negative) for stocks with high (low) foreign interest. The cross-sectional analysis finds that exposure to unexpected flows has a significant valuation impact for stocks in the first segment, but not for those in the second. The study finds no evidence to suggest that foreign investors cause excess volatility in the market. Rather, it appears that the extraordinarily high volatility during the crisis period is related to domestic selling as foreign investors are net buyers, and thus liquidity providers during that period. Recognizing the importance of foreign flow in promoting trading activity, my study shows that the impact of foreign flow on market volatility may be erroneously magnified without controlling for market liquidity. These results hold in both market segments.Financ

Stock splits in a retail dominant order driven market

This paper uses intraday and daily data from the Stock Exchange of Thailand (SET) between 2002 and 2004 to provide evidence that firms use stock splits to bring their stock prices down to a preferred trading range of their clientele base. Stock splits reduce bid-ask spreads and intraday and daily price impact while increasing depths supplied by retail investors who account for 60-70% of trading on the SET. Firms that choose a high split factor experience greater improvement in liquidity. The study finds no evidence that split announcements are used to signal post-split earnings performance.Stock splits Liquidity Asset pricing Tick size Trading range

Liquidity and Trading Cost Segmentation in Asia Pacific Equity Markets Liquidity and Trading Cost Segmentation in Asia Pacific Equity Markets

Abstract This paper provides a cross-country comparison of the market microstructures of ten equity markets in Asia Pacific using daily and intraday data in 2007. At the aggregrate level, below median price stocks exhibit lower liquidity performance traits and higher volatility. We also find some salient features associated with developed and emerging market segments. The latter segment is typically associated with a higher level of retail investor participation and higher turnover velocity in the below median price segment. Even so, the study finds that stocks with below median price have higher liquidity costs suggesting that retail investors are paying a price for liquidity. Intramarket liquidity differences within developed and emerging market segments can be extreme with differences between the median spreads of the highest market being almost seven times the spreads of the lowest market. JEL Classification: G14 Keywords: Asia-Pacific Exchanges; Emerging Financial Markets; Liquidity ; Market microstructure * Corresponding author's information: Thammasat Business School, 2 Prachan Rd. Bangkok 10200, Thailand. e-mail: [email protected]. We thank Siripong Paisarnkongtawee and Sukanya Prangwattananon at the Stock Exchange of Thailand for their assistance in carrying out market surveys. We thank the POSCO TJ Park Foundation, Korea for their financial support. Liquidity and Trading Cost Segmentation in Asia Pacific Equity Markets This paper provides a cross-country comparison of the market microstructures of ten equity markets in Asia Pacific using daily and intraday data in 2007. At the aggregrate level, below median price stocks exhibit lower liquidity performance traits and higher volatility. We also find some salient features associated with developed and emerging market segments. The latter segment is typically associated with a higher level of retail investor participation and higher turnover velocity in the below median price segment. Even so, the study finds that stocks with below median price have higher liquidity costs suggesting that retail investors are paying a price for liquidity. Intramarket liquidity differences within developed and emerging market segments can be extreme with differences between the median spreads of the highest market being almost seven times the spreads of the lowest market

Tick size change on the Stock Exchange of Thailand

Tick size, Market microstructure, Transaction costs, G14, G18,