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RFS Advance Access originally published online on June 2, 2005
Review of Financial Studies 2005 18(3):795-829; doi:10.1093/rfs/hhi028
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© The Author 2005. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oupjournals.org

Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea

Hyuk Choe
Seoul National University

Bong-Chan Kho
Seoul National University

René M. Stulz
The Ohio State University and NBER

We investigate whether domestic investors have an edge over foreign investors in trading domestic stocks. Using Korean data, we show that foreign money managers pay more than domestic money managers when they buy and receive less when they sell for medium and large trades. The sample average daily trade-weighted disadvantage of foreign money managers is 21 basis points for purchases and 16 basis points for sales. There is also some evidence that domestic individual investors have an edge over foreign investors. The explanation for these results is that prices move more against foreign investors than against domestic investors before trades.


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