Bayesian analysis of time-varying interactions between stock returns and foreign equity flows

Abstract This study discusses the trading behavior of foreign investors with respect to economic uncertainty in South Korean stock market from a time-varying perspective. We employ news-based measure along model parameter vector autoregression stochastic volatility. The empirical analysis reveals several new findings about investors’ behaviors. First, we find evidence that positive feedback often appears during periods high uncertainty, whereas negative is exclusively observable low uncertainty. Second, mostly be well-timed and leads except global crises. Third, lagged (positive) response net flows found coupled (negative) trading. Fourth, documents an asymmetric regard shocks Specifically, they instantly turn after contemporaneous In contrast, move slowly toward shocks.