Foreign equity flows: Boon or bane to the liquidity of Malaysian stock market?

Liew, Ping Xin and Lim, Kian Ping and Goh, Kim Leng (2018) Foreign equity flows: Boon or bane to the liquidity of Malaysian stock market? The North American Journal of Economics and Finance, 45. pp. 161-181. ISSN 1062-9408

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Official URL: https://doi.org/10.1016/j.najef.2018.02.007

Abstract

This paper examines the impact of gross foreign equity inflows on aggregate liquidity of the Malaysian stock market using newly assembled foreign trading data and the best performing bid-ask spread proxy. Employing vector autoregression, we discover a one-way causality from gross inflows to aggregate liquidity, and foreign investors erode liquidity of the Malaysian stock market. Additional analyses reveal that uncertainties in the U.S. markets negatively affect aggregate liquidity through the flows of foreign institutions, whose positive feedback trading destabilizes the local bourse. Despite the shocks, there is sufficient liquidity provision from local state-backed institutional funds and local proprietary day traders.

Item Type: Article
Uncontrolled Keywords: Foreign equity flows; Aggregate liquidity; Malaysian stock market; Vector autoregression; VIX
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Economics & Administration
Depositing User: Ms. Juhaida Abd Rahim
Date Deposited: 17 Jun 2019 04:07
Last Modified: 17 Jun 2019 04:07
URI: http://eprints.um.edu.my/id/eprint/21467

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