Do foreign institutions improve stock liquity?
This paper examines whether capital flows by foreign institutions improve liquidity in domestic markets. I find that stocks with increased foreign institutional ownership subsequently experience higher liquidity. However, it is difficult to interpret this evidence as a causal relation because instit...
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| 格式: | text |
| 語言: | English |
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Institutional Knowledge at Singapore Management University
2010
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| 在線閱讀: | https://ink.library.smu.edu.sg/lkcsb_research/6779 https://ink.library.smu.edu.sg/context/lkcsb_research/article/7778/viewcontent/SSRN_id1571220.pdf |
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| 機構: | Singapore Management University |
| 語言: | English |
| 總結: | This paper examines whether capital flows by foreign institutions improve liquidity in domestic markets. I find that stocks with increased foreign institutional ownership subsequently experience higher liquidity. However, it is difficult to interpret this evidence as a causal relation because institutions tend to self-select into more liquid stocks. To solve this problem, I exploit the 2003 US dividend tax cut as a natural experiment. The results from a 2SLS (IV) regression confirm that liquidity improved more in dividend-paying stocks located in US tax-treaty countries compared to similar stocks located in non-treaty countries. These patterns are consistent with the notion that institutions improve liquidity through a variety of channels including information competition and greater liquidity trading. |
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