Foreign Shareholding and Stock Price Efficiency: Firm-Level Evidence from Malaysia

55 Pages Posted: 1 Jan 2014

See all articles by Kian-Ping Lim

Kian-Ping Lim

Universiti Malaya

Chee Wooi Hooy

Universiti Sains Malaysia

Kwok-Boon Chang

President College

Robert D. Brooks

Monash University; Financial Research Network (FIRN)

Date Written: December 31, 2013

Abstract

This paper examines the relationship between foreign shareholding and stock price efficiency for Malaysian public listed firms over the 2002-2008 sample period. We use stock price delay as an inverse measure of informational efficiency, and consider the speed of adjustment to local and global common factor information. The results show that foreign investors accelerate the incorporation of both types of common information into the prices of Malaysian stocks, mainly due to their superior skills in processing systematic market-wide factors. However, we find evidence of optimality in foreign shareholding, suggesting that the efficiency benefit disappears after foreign ownership exceeds a certain threshold level. Further analyses uncover the underlying channels that give rise to the U-shaped curve, and identify the significant moderating variables that strengthen this relationship. Our disaggregate analysis on foreign investor heterogeneity shows that foreign investors who trade via nominee accounts are elite processors of public market-wide and firm-specific news in the Malaysian stock market.

Keywords: Foreign investors, informational efficiency, price delay, financial liberalisation, Malaysia

JEL Classification: G14, G15, G38

Suggested Citation

Lim, Kian-Ping and Hooy, Chee Wooi and Chang, Kwok-Boon and Brooks, Robert Darren, Foreign Shareholding and Stock Price Efficiency: Firm-Level Evidence from Malaysia (December 31, 2013). Available at SSRN: https://ssrn.com/abstract=2373482 or http://dx.doi.org/10.2139/ssrn.2373482

Kian-Ping Lim (Contact Author)

Universiti Malaya ( email )

Department of Economics
Faculty of Economics and Administration
Kuala Lumpur, 50603
Malaysia

Chee Wooi Hooy

Universiti Sains Malaysia ( email )

Minden, Penang
Malaysia

Kwok-Boon Chang

President College ( email )

28th & 29th Floor, 100 Putra Place
Jalan Putra
Kuala Lumpur, 50350
Malaysia

Robert Darren Brooks

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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