Friends or Foes? Foreign Investors in the Thai Stock Market During 1994-1998

This paper investigates foreign investors’ behaviors in the Thai stock market during the late 1990s. The statistical data demonstrates the difference in trading behaviors of foreigners relative to other groups of investors. During the crisis, local investors were discouraged and their market participation fell while the foreigners remained present as net buyers. Market-timing tests reveal abilities of foreign investors in forecasting market returns, resulting in their relatively high wealth holdings compared to other investors. In addition, the information analysis suggests evidence revealing different behaviors of investors in response to publicly available new. Foreigners purchase from lacal investors in response to good news. The last set of evidence from VAR analysis implies positive feedback trading behaviors of foreign investors but recover no sign of market destabilization. Despite the fast that a fall in foreign net purchases may contribute to a decline in stock market index in the late 1996, foreign net purchases help prevent a deeper decline of the market in 1997.