زندگی با "دشمن": تجزیه و تحلیل سرمایه گذاری خارجی در بازار سهام ژاپن

This paper studies the impact of foreign investment on domestic financial markets. In particular, it examines the empirical validity of some protectionist claims used by regulators to restrict foreign investment. These people argue that: (1) trading by foreign investors tends to increase market volatility more than trading by domestic investors; (2) foreign investors have more sophisticated investment technology than do their domestic counterparts, causing domestic investors to “lose out” to foreign ones; and (3) foreign investors tend to make investment decisions on the basis of short-term gains rather than long-term fundamentals, such as corporate dividend growth. We find no evidence supporting these claims from the Japanese experience. To the contrary, we find that foreign investors tend to be long-term contrarian players in the market.

Theoretical and empirical research in finance has demonstrated that international diversification brings enormous benefit to portfolio investors.1 A recent economic study by Obstfeld (1994) also shows that international diversification can spur economic growth in developing countries by allowing risk-averse investors to take on risky projects. Few studies, however, have systematically examined the impact of foreign equity portfolio investment on domestic financial markets. This is an important issue, particularly given the recent dramatic declines in stock prices of many emerging markets that have resulted from foreign money outflow, and the severe financial disruption that has been created in these economies. Indeed, a serious question is raised about whether international “hot money” really facilitates long-term market development in emerging markets.2 The presence of foreign investment barriers in many countries suggests that government regulators have serious doubts about the long-term benefits of foreign investment. Financial authorities in these vulnerable emerging markets often argue that foreign portfolio investment would increase market volatility, hence exposing them to unduly high risk. Another concern is that investors in developed markets have sophisticated investment technology to which domestic investors do not have access, so that domestic investors tend to “lose out” to foreign investors. Open market reform can become quite difficult under the strained political circumstances that result. Emerging market regulators are also concerned that foreign investors tend to be short-term players whose presence in the market today may not be guaranteed tomorrow. In Thailand, for example, investment by foreigners is restricted to a different class of shares that are traded on a separate exchange.3 Similar regulation exists in China. High withholding taxes on investment gains are another form of restriction against foreign investment (see Harvey (1995) for a description of various capital restrictions in the emerging markets). In this paper, we study the empirical validity of some of the arguments against foreign investment by examining the behavior of foreign investors in the Japanese stock market. We evaluate and contrast this behavior with that of Japanese domestic investors. The questions we ask are: (1) Do foreign investors demonstrate different investment behavior compared to domestic investors? In particular, are foreign investors contrarians or counter-contrarians, or are they short-term oriented in their investment horizon? (2) How do domestic and foreign investors fare with respect to investment results? and (3) Is there evidence that foreign investors cause higher volatility in the domestic market? Although there may well be other concerns of financial market regulators, such as protection of domestic financial institutions and investors against foreign competition, here we focus on the above three general questions that are often asked in the context of open-market reforms of emerging markets. The sample period of this study encompasses the gradual deregulation of the Japanese market, especially with regard to foreign investment over the last 30 years. Our data dates back to the early 1970s when the market was much smaller and more tightly regulated against foreign investment. Then, following the significant amendment to the Foreign Exchange Control Law that took effect at the end of 1980, Japan was, in principle, open to foreign ownership.4 As a result, our more recent data on trading volume shows a significant increase in trading activities by foreign investors. By examining the behavior of overseas investors in the Japanese market, we can study the impact of foreign investment on domestic financial markets. As a point of clarification, we are analyzing the long-term behavior of foreign investors and the impact of this behavior on the domestic market. To aid this analysis, we examine approximately 18 years of monthly data. We do not, however, examine short-term (day-by-day or minute-by-minute) behavior of foreign investors, such as index futures arbitrage transactions. In the early 1990s, Japanese regulators introduced several measures to discourage transactions in the stock index futures market on the grounds that such arbitrage transactions cause excessive volatility in the spot market.5 Because of their high transactions costs and taxes, arbitrage transactions tend to be profitable only for proprietary dealings by securities houses (see Brenner et al., 1989). Since foreign securities houses were active in the futures market, these measures may be partly viewed as regulations against them. We do not address this point. Our definition of foreign investors includes long-term players such as mutual and pension funds. Since proprietary transactions by foreign securities firms are classified as “securities firm proprietary dealing (domestic and foreign)”, we are unable to separate these transactions from domestic trades. Other researchers have used similar datasets from the United States. Tesar and Werner, 1994 and Tesar and Werner, 1995 and Bohn and Tesar, 1995 and Bohn and Tesar, 1996 analyzed data on net purchases of international equities by US investors. They found no empirical support for the hypothesis that investment activity by foreigners has caused increased host–market volatility. Using data from 17 emerging market countries, Bekaert and Harvey (1997) further discovered that financial market liberalization has generally decreased market volatility in these markets. Compared to these studies, our dataset has two advantages. First, it covers a longer time period (1975–1992). Second, it includes data on a cross-section of various foreign and other investors in the Japanese market, allowing us to determine which investment behavior is causing greater market volatility. In addition, our study analyzes the extent to which foreign, as compared to domestic, investment is driven by long-term market fundamentals, such as dividend news. We also apply the market timing test of Henriksson and Merton (1981) in evaluating the market timing performance of Japanese and foreign investor groups. The paper is divided into five sections. Section 2 describes the data and presents some summary statistics on Japanese stock market performance and the trading behavior of Japanese and foreign investor groups. Section 3 examines the impact on market volatility of trading by major investor groups. Section 4 evaluates the market timing ability of Japanese and foreign investor groups in the Japanese market through application of Henriksson and Merton's (1981) market timing test. Section 5 presents an approximate present value model in which excess returns are decomposed into three different components (innovations or news) about dividend growth, interest rates, and future expected returns) and then examines the relationships between trading behavior and various innovations in security returns. Section 6 concludes the paper.

This paper develops a comprehensive framework for analyzing the impact of foreign investment on domestic financial markets. First, we develop a three-stage-least-squares estimation approach to examine the impact of foreign and domestic trading on market volatility. Second, we use net purchases of securities as a proxy for investors' forecasts of future excess returns, and apply the market timing test of Henriksson and Merton (1981) to evaluate the market timing performance of various investment groups in the Japanese market. Third, using the Campbell and Shiller (1988) approximate present value model, we decompose excess stock return innovations into news about future excess returns, dividend growths, and interest rates. We then study the relationship between different news components and foreign and domestic trading behavior. Our study confirms the results of Tesar and Werner, 1994 and Tesar and Werner, 1995 and Bohn and Tesar, 1995 and Bohn and Tesar, 1996: there is little evidence that trading by foreign investors tends to increase market volatility any more than trading of domestic groups. We find that foreign investment improves liquidity in the Japanese market. We also find no evidence of superior foreign investor market timing abilities. There is even some weak evidence that foreign investment is sensitive to long-term dividend news. We view this study as a further step towards understanding the impact of foreign investment on domestic financial markets. Our work provides future researchers with useful information about data collection, econometric modeling and estimation procedures. It also provides some direction for future research, such as the need to develop a more comprehensive framework to evaluate the costs and benefits of foreign investment and the regulatory policy issue of how to balance the need for attracting foreign capital and maintaining domestic market stability. We hope our work will stimulate even further theoretical and empirical analysis in this area.