Foreign institutional ownership and stock market liquidity: Evidence from Indonesia

Rhee, SG; Wang, J

Foreign institutional ownership and stock market liquidity: Evidence from Indonesia

Rhee, SG Wang, J

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Publication Type:: Journal Article
Citation:: Journal of Banking and Finance, 2009, 33 (7), pp. 1312 - 1324
Issue Date:: 2009-07-01

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Field	Value	Language
dc.contributor.author	Rhee, SG	en_US
dc.contributor.author	Wang, J	en_US
dc.date.issued	2009-07-01	en_US
dc.identifier.citation	Journal of Banking and Finance, 2009, 33 (7), pp. 1312 - 1324	en_US
dc.identifier.issn	0378-4266	en_US
dc.identifier.uri	http://hdl.handle.net/10453/15767
dc.description.abstract	From January 2002 to August 2007, foreign institutions held almost 70% of the free-float value of the Indonesian equity market, or 41% of the total market capitalization. Over the same period, liquidity on the Jakarta Stock Exchange improved substantially with the average bid-ask spread more than halved and the average depth more than doubled. In this study we examine the Granger causality between foreign institutional ownership and liquidity, while controlling for persistence in foreign ownership and liquidity measures. We find that foreign holdings have a negative impact on future liquidity: a 10% increase in foreign institutional ownership in the current month is associated with approximately 2% increase in the bid-ask spread, 3% decrease in depth, and 4% rise in price sensitivity in the next month, challenging the view that foreign institutions enhance liquidity in small emerging markets. Our findings are consistent with the negative liquidity impact of institutional investor ownership in developed markets. Crown Copyright © 2009.	en_US
dc.relation.ispartof	Journal of Banking and Finance	en_US
dc.relation.isbasedon	10.1016/j.jbankfin.2009.01.008	en_US
dc.subject.classification	Finance	en_US
dc.title	Foreign institutional ownership and stock market liquidity: Evidence from Indonesia	en_US
dc.type	Journal Article
utslib.citation.volume	7	en_US
utslib.citation.volume	33	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	1401 Economic Theory	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access
pubs.issue	7	en_US
pubs.publication-status	Published	en_US
pubs.volume	33	en_US

Abstract:

From January 2002 to August 2007, foreign institutions held almost 70% of the free-float value of the Indonesian equity market, or 41% of the total market capitalization. Over the same period, liquidity on the Jakarta Stock Exchange improved substantially with the average bid-ask spread more than halved and the average depth more than doubled. In this study we examine the Granger causality between foreign institutional ownership and liquidity, while controlling for persistence in foreign ownership and liquidity measures. We find that foreign holdings have a negative impact on future liquidity: a 10% increase in foreign institutional ownership in the current month is associated with approximately 2% increase in the bid-ask spread, 3% decrease in depth, and 4% rise in price sensitivity in the next month, challenging the view that foreign institutions enhance liquidity in small emerging markets. Our findings are consistent with the negative liquidity impact of institutional investor ownership in developed markets. Crown Copyright © 2009.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/15767