Domestic, Institutional And Foreign Investors In Emerging Markets: The Case Of The Colombian Stock Exchange

We study trading behavior and performance of institutional, foreign and domestic investors by management style, trading characteristics and market type. Using a comprehensive Colombian data with complete transaction records and unique investor identification, we evaluate performance using non-parametric and parametric methodologies. Recent research explores the difference in performance between local and foreign investors due to cultural affinity and familiarity with local conditions (Chan et al., 2005; Portes and Rey, 2005; Leuz et al., 2010), home bias, flows volatility and herding (Brennan and Cao, 1997; Lewis, 1999; Karolyi and Stulz, 2003). Similarly, other studies analyze investor experience and the ability to acquire private information (Froot and Ramadorai, 2008; Albuquerque et al., 2009).At the institutional investor setting, recent studies challenge the belief that pension funds are stabilizers of the financial system, providing liquidity and short-term financing (Shin 2013). Trading behavior of institutional investors may affect asset valuation differently due to correlated flows and herding (Hirshleifer et al., 1994; Bikhchandani et al., 1992; Guercio, 1996; Bennett et al., 2003; Sias, 2004; Choi and Sias, 2009).On the performance of individual investors, Barber and Odean (2000) find evidence on the under performance of individuals driven by overconfidence and excess of trading. Barber, Lee, Liu and Odean (2009) quantify the losses of trading by individual investors, due to aggressive orders. Linnainmaa (2010) analyzes whether individual investors rely on limit or market orders to execute trades and their impact on performance. Other studies consider gender, age, experience, and IQ attributes as performance drivers (Korniotis and Kumar, 2009a;Grinblatt, Keloharju, and Linnainmaa, 2010; Campbell, Ramadorai and Ranish, 2014; Kaplanski, Levy, Veld, and Veld-Merkoulova, 2015).Our results highlight the costs of passive investment strategies, the effects of peer benchmarking by institutional investors on asset prices, the impact of trading style on the performance of individual investors, the degree of market efficiency in the Colombian market, the influence of board diversity in listed companies, and common ownership of foreign investors.

We study trading behavior and performance of institutional, foreign and domestic investors by management style, trading characteristics and market type. Using a comprehensive Colombian data with complete transaction records and unique investor identification, we evaluate performance using non-parametric and parametric methodologies. Recent research explores the difference in performance between local and foreign investors due to cultural affinity and familiarity with local conditions (Chan et al., 2005; Portes and Rey, 2005; Leuz et al., 2010), home bias, flows volatility and herding (Brennan and Cao, 1997; Lewis, 1999; Karolyi and Stulz, 2003). Similarly, other studies analyze investor experience and the ability to acquire private information (Froot and Ramadorai, 2008; Albuquerque et al., 2009).At the institutional investor setting, recent studies challenge the belief that pension funds are stabilizers of the financial system, providing liquidity and short-term financing (Shin 2013). Trading behavior of institutional investors may affect asset valuation differently due to correlated flows and herding (Hirshleifer et al., 1994; Bikhchandani et al., 1992; Guercio, 1996; Bennett et al., 2003; Sias, 2004; Choi and Sias, 2009).On the performance of individual investors, Barber and Odean (2000) find evidence on the under performance of individuals driven by overconfidence and excess of trading. Barber, Lee, Liu and Odean (2009) quantify the losses of trading by individual investors, due to aggressive orders. Linnainmaa (2010) analyzes whether individual investors rely on limit or market orders to execute trades and their impact on performance. Other studies consider gender, age, experience, and IQ attributes as performance drivers (Korniotis and Kumar, 2009a;Grinblatt, Keloharju, and Linnainmaa, 2010; Campbell, Ramadorai and Ranish, 2014; Kaplanski, Levy, Veld, and Veld-Merkoulova, 2015).Our results highlight the costs of passive investment strategies, the effects of peer benchmarking by institutional investors on asset prices, the impact of trading style on the performance of individual investors, the degree of market efficiency in the Colombian market, the influence of board diversity in listed companies, and common ownership of foreign investors.

Investment performance, institutional investors, foreign investors, domestic investors, mutual funds, pension funds, asset prices, transactional data, portfolios