The Relation Between Foreign Investors' Trading and Stock Returns (A Case of Thailand)

Abstract

The objective of this study is to investigate bivariate-causal relationship between foreign portfolio flows and stock returns of the Stock Exchange of Thailand. The study employs the Granger-causality test to analyze the presence and direction of causality between the two variables from 1995 to 2000. The result indicates that there is a uni-directional relationship from stock returns to foreign portfolio flows before and during the Asian financial crisis. The finding implied that ups and downs of the Thai stock market affected the net purchases of foreign investors. The results also showed no causality relationship from foreign portfolio flows to stock returns. It implied that foreign investors in the Thai stock market did not stimulate stock prices.