Does Foreign Investors Trade Predict Stock Return? Evidence from Taiwan

This paper analyzes the trade of foreign investors in Taiwan stock market by examining the firm level daily data. Foreign investors tend to buy stocks of past winners and to sell stocks of losers, implying that foreign investors are momentum traders. For large size or low book-to-market stocks, we find the trade of foreign investors can positively predict future returns. We interpret these results as foreign investors may have more information advantage or have less information disadvantage than local investors have in those stocks