Title

Behavior of foreign investors in the Malaysian stock market in times of crisis: A nonlinear approach

Source of Publication

Journal of Asian Economics

Abstract

© 2018 Elsevier Inc. This study investigates the response to crisis of foreign investors versus domestic investors in the Malaysian stock market. The econometric-modeling involves a nonlinear approach which allows for investor responses to differ in up and down markets. Specifically, the smooth-transition autoregressive (STAR-STGARCH) family of models and generalized impulse response function (GIRF) analysis are employed. The 1997 Asian Crisis is analyzed using daily data for the period 1995–2003, and the 2008 Global Financial Crisis for a period extended to 2015 with allowance for structural breaks. The results indicate that foreign investors exhibited herding behavior during the Asian Crisis and responded to the shock more quickly than domestic investors, but that foreigners did not act differently from their domestic counterparts during the Global Financial Crisis. These findings suggest that even as foreign capital flows may be desirable for economic growth, they can be unstable and may increase volatility during crises that are locally rooted.

Document Type

Article

First Page

85

Last Page

100

Publication Date

2-1-2019

DOI

10.1016/j.asieco.2018.11.002

Author First name, Last name, Institution

Tolga Omay, Atilim University
Perihan Iren, Zayed University

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