THE ASIAN CRISIS AND INVESTOR BEHAVIOR

IN THAILAND’S EQUITY MARKET

Akiko Kamesaka*, Ryukoku University
Jianxin Wang**, University of New South Wales

December 27, 2004

Comments are welcome

* Until March, 2005 - Department of Economics, Ryukoku University, Kyoto 612-

8577, Japan. E-mail: akiko@econ.ryukoku.ac.jp
From April, 2005 - School of Management, Aoyama Gakuin University, Tokyo
150-8366, Japan. E-mail: akiko@busi.aoyama.ac.jp
URL: http://www.geocities.co.jp/WallStreet-Stock/4998/

** School of Banking and Finance, University of New South Wales,

Sydney NSW 2052, Australia.
 The Asian Crisis and Investor Behavior in Thailand’s Equity Market

Abstract
This paper investigates the short-term speculative trade performance of
individual, institutional and foreign investors using daily buying and selling
flows from Thailand’s equity market. The sample period covers the Asian crisis in
Thailand. We examine investor behavior before, during and after this crisis by
dividing our data into three sub-periods: namely, from January 3, 1996 to June
30, 1997 (before the crisis), from July 2, 1997 to September 30, 1998 (during the
crisis), and from October 1, 1998 to December 30, 1999 (after the crisis). The
results indicate that foreign investors tend to increase their net buying (buying
less selling) after an increase in stock price of a few days, whereas individual
investors in Thailand tend to increase their net buying after a drop in the stock
price of a few days. The trading patterns of foreign and individual investors are
unchanged before, during and after the Asian crisis, regardless of the large
change in the condition of Thailand’s market. We also observe positive stock
returns following foreigners’ net buying, and negative stock returns after
individuals’ net buying during all periods. Wealth transfer by short-term
speculation from Thailand’s domestic investors to foreign investors is found to be
300–1600 million Baht for the 18 months before the crisis period, 500–1800
million Baht during the 15 months of the crisis, and 700–3000 million Baht in
the 15 months following the crisis, depending on the assumptions imposed on
investment horizons. Foreign investors’ superiority in market timing is observed
in all three periods, even when trade performance is evaluated on the basis of US
dollar-based returns.

Keywords: Asian Crisis, Thailand, Investor behavior, Foreign investors

We thank Chaiyasit Anuchitworawong, Thomas Connelly, Barry Feldman,

Takatoshi Ito, Frank Jen, Munehisa Kasuya, Burin Kantabutra, Piman
Limpaphayom, Sirisuk Manmettakul, Eiji Ogawa, Paolo Pasquariello, Megumi
Suto, Yoshiro Tsutsui, Lugkana Worasinchai, Kathy Yuan, Lu Zheng, seminar
participants at Bangkok University, Hitotsubashi University, MEW (Macro -
economics workshop) at Osaka University, the University of Michigan, Asian
Finance Association/TFA/FMA conference, the Japan Economic Association
Meeting, the Nippon (Japan) Finance Association Meeting, Japan Society of
Monetary Economics meeting, the Midwest Finance Association meeting, Pacific
Basin Finance, Economics, Accounting, and Business conference in Bangkok,
Finance Forum of Institute for Posts and Telecommunications Policy (Japan) for
helpful comments and suggestions. Financial support from the Japan Society for
the Promotion of Science, Grants-in-aid for Young Scientists (B15730164) and a
competitive grant from Ryukoku University Research Institute for Social
Sciences are gratefully acknowledged.
 The Asian Crisis and Investor Behavior in Thailand’s Equity Market

We must not let the perfect be the enemy of the good. In a downpour,
it is better to have a leaky umbrella than no umbrella at all. There are reforms to
the international economic architecture that can bring the advantages of
globalisation, including global capital markets, while mitigating their risks. We
are beginning to see a new consensus forming around ways to restrain the risk of
‘hot money’ and the goal of developing procedures for orderly work-outs.
Hopefully the continuing international dialogue on these and other issues will
continue to make progress in these and other areas.
Must financial crises be this frequent and this painful?
Joseph Stiglitz, 2002

1. Introduction
There is an ongoing debate on whether international investors destabilize the
capital markets of developed and developing countries, with much of the existing
literature suspicious of foreigners in this regard (Choe, Kho and Stulz (1999),
Hamao and Mei (2001), Karolyi (2002), Bekaert and Harvey (2000)).
Unfortunately, we have very limited information concerning hedge funds since
they are unregulated investment entities. Brown, Goetzmann and Park (1998)
investigate the changing positions of the top 10 global hedge funds on the
Malaysian ringgit and conclude that their net positions or profits were not
1
unusual during the Asian crisis . However, there are still a number of arguably
unresolved questions: namely, what were the sources of this profitability and just
why did these hedge funds enter these emerging markets and trade so actively2?
Some public leaders, for example, consider that the excess capital flows by
foreign traders bring about financial instability and could, or can be, a further
cause of serious financial crises. For example, Malaysia’s former Prime Minister
Mohammad Mahathir during the Asian crisis stated that Asian nations were
keen to receive investments from Europe and America3, and Malaysia imposed
several measures to control capital flows to cope with the Asian crisis. Many
market participants in emerging markets consider that foreign investors enter
their capital market for the purposes of speculation, and exit when with the
expectation that they are unable to make any further profits. On this basis, the
control of foreigner inflow may be beneficial for protecting domestic investors’
wealth and their national economy if they are amplifying excess asset price
fluctuation (Bhagwati (1998) and Stiglitz (1998)).
Several studies have been conducted to capture the common factors
determining these international capital flows. Froot, O’Connell and Seasholes
(2001), for example, examined the daily international portfolio flows of 44
countries from 1994 to 1998, and found that regional factors have increased in
importance over time. Their results also indicate that regional flows are strongly
influenced by past returns and have important forecasting power in emerging

1
The differences between their results and ours might be due to the differences in the country analyzed, differences
in data frequency, applied macroeconomics policies of the countries, etc.
2
Eichengreen and Mathieson (1998) find evidence of large sells by hedge funds; however, they do not consider it a
cause of the crisis.
3
Mahathir (1997)
markets. Richards (2002) used daily net purchases by foreigners in six Asian
emerging equity markets from 1999 to 2001 and found strong evidence of
positive-feedback trading with respect to recent domestic, US and regional equity
returns. Griffin, Nardari and Stulz (2002) developed a model that accounted for
home bias assuming foreign investors are less informed than domestic investors,
and found that unexpectedly high worldwide returns led to net equity flows into
small countries 4 . Lastly, Boyer, Kumagai and Yuan (2002) concluded that
international transmissions of crises are more pronounced in investable than in
non-investable stocks.
Although understanding financial “contagion” and capturing the nature of
international capital flows are important for understanding the transmission
mechanism of the worldwide crises, it is no less important to understand how the
crisis started from the crisis source country 5 . The literature on past crises 6
suggests that every financial crisis has different causes and effects7 and every
financial crisis brings out different outcomes for different countries in the region.
For instance, the fiscal problems of, say, Russia or Brazil, would do little to
illustrate the Asian crisis, and care needs to be taken if we are to understand
what happened in Thailand by looking at research on other countries in the
region. Indeed, our results on Thailand’s equity market are very different from
the results of studies concerning the Korean equity market. Choe, Kho and Stulz
(2000) investigated all trades on the Korea Stock Exchange from December 1996
to November 1998, and found that domestic individual investors only have a
short-lived information advantage for individual stocks over foreign investors
during the Asian crisis in Korea 8 . Alternatively, Kamesaka and Wang (2001)
investigated aggregate daily trades of foreign and domestic investors from
January 1996 to June 2000 in Indonesia, and found superior returns from
foreigners’ buying from domestic investors over domestic investors’ buying from
foreigners. Their results also show that foreigners’ superiority in market timing
disappears after the crisis when the country begins to suffer from political
instability. In this paper on Thailand’s equity market, we show that foreign
investors in Thailand traded with good timing before, during and after the Asian
crisis, regardless of market changes. During the Asian crisis, three countries,
Thailand, Indonesia and Korea, called on financial support from the IMF. These
three countries suffered most from the Asian crisis; however, the impacts of the
crisis on the equity markets are different in each country and the analyzed
period9.
There is also some related research that looks closely at the investor behavior
of specific countries. Using daily data for the 16 largest stocks in Finland,
Grinblatt and Keloharju (2000) found that foreign investors and domestic
financial corporations buy more stocks that perform well in the following 120
4
Their sample period varies by country depending on the data availability. The longest data period they use in their
analysis is for Indonesia, Korea and South Africa from January 1996 to February 2001.
5
Ito and Hashimoto (2002) examine contagion effects among six Asian countries, and find that Indonesia and
Korea are the main countries affecting exchange rates and stock prices of other countries.
6
Theoretical models of speculation on the currency include Krugman (1979, 1997), Flood and Garber (1984) and
Obstfeld (1996).
7
Corsetti, Pesenti and Roubini (1999a) focus on the downturn of the fundamentals, and Sachs and Radelet (1998)
focus on the panic as the cause of the Asian crisis.
8
Kim (2000) examines daily transactions in Korea from 1997 to 1999, and finds that foreigners and domestic
institutions out-perform domestic individuals in large stocks, whereas foreigners and domestic institutions under-
perform domestic individuals in small stocks.
9
Choe, Kho and Stulz (1999) use trade data from 1996 to 1997 and find strong evidence of positive feedback
trading and herding by foreign investors before the crisis. They also find that positive feedback trading disappears
after the break out of the crisis. Seasholes (2000) investigates daily stock market data (Taiwan and Thailand) and
Korea (monthly) and finds evidence of foreigners earning economically significant profits.
trading days than do domestic individual investors. Murase (1999) and
Kamesaka, Nofsinger and Kawakita (2003) investigated weekly aggregate buying
and selling flows over nearly 18 years from Japan, and found that foreign
investors and securities companies trade with good market timing. In their
results, domestic individual investors and non-financial companies performed
poorly10. Japan is now suffering a long and country-specific crisis, which involves
its own distinctive elements 11 . Detailed case analysis might be important for
understanding capital flows in Japan. Bailey and Jagtiani’s (1994) study of
monthly stock returns of individual firms in Thailand from January 1988 to
December 1992 was more than four years before the breakout of the Asian crisis.
Their results indicate that foreign board stock prices are higher than main board
stock prices in Thailand, and they explain the differences as being due to the
differences in risk exposure and expected risk premiums faced by Thai and non-
Thai investors.
In this paper, we focus on the behavior of foreign, domestic institutional and
individual investors in Thailand’s equity market using daily aggregated buying
and selling flows from January 3, 1996 to December 30, 1999. The Asian Crisis,
one of the major recent international financial crises, began in Thailand on July 2,
1997. One goal of this paper is to examine investor behavior in the country where
the crisis originated. By using daily aggregate buying and selling during the 18
months preceding the crisis, we compare investor behavior during this stress
with that under this stress. Figure 1 shows GDP of Thailand from 1993 to 2002.
By the continuous expansion of Thailand’s economy, GDP grew to nearly 800
billion Baht (797 billion Baht) in the last quarter of 1996. It began to fall in 1997
and, after the Asian crisis, it dropped to 659 billion Baht in the third quarter of
1998. In the last quarter of that year, it began to show signs of recovery at 709
billion Baht, and in the first quarter it reached 810 billion Baht.

850,000

800,000

750,000

700,000

650,000

600,000

550,000
01

03

01

03

01

03

01

03

01

03

01

03

01

03

01

03

01

03

01
93

93

94

94

95

95

96

96

97

97

98

98

99

99

00

00

01

01

02
19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

YYYYQQ
Fig.1. GDP of Thailand.

Figure 2 shows the value of the SET index in the local currency during the
10
Independent of their analysis, Karolyi (2002) examines aggregated weekly investment flow in Japan from
January 1995 to March 2001, and finds evidence of foreign investors trading with good timing during his sample
period.
11
See Krugman (2002), Corsetti, Pesenti and Roubini (1999a,b) and Summers (2000).
sample period January 1996 to December 1999. The stock price began to fall from
around 1400 points in early 1996, to around 600 points by the middle of 1997,
and before the outbreak of the Asian Crisis. The index reached its lowest point on
September 4, 1998, after the outbreak of the crisis, and then gradually began to
show recovery afterwards. The SET index in US dollars also fell during 1996 and
1997, and showed signs of recovery from the last quarter of 1998. In our analysis,
we divide our sample into before, during and after the crisis period as follows:
January 3, 1996 to June 30, 1997 (before the crisis), July 2, 1997 to September 30,
1998 (during the crisis) and October 1, 1998 to December 30, 1999 (after the
crisis)12.

1600

1400

1200

1000

800

600

400

200

0
960103
960212
960325
960509
960620
960801
960911
961021
961129
970114
970224
970403
970521
970630
970811
970919
971030
971211
980123
980305
980420
980602
980714
980824
981001
981111
981223
990203
990316
990429
990611
990722
990902
991012
991122
Fig. 2. The SET Index. YYMMDD

2. Asian Crisis and the Behavior of Foreign, Domestic Institutional and

Individual Investors in Thailand
Our sample period comprises 18 months in the pre-crisis period, 15 months
during the crisis and 15 months in the post-crisis period. Table 1a summarizes
the mean, standard deviation, and minimum and maximum values of daily
buying and selling of each of the three investor groups: foreign, domestic
institutional and individual investors based on samples from January 3, 1996 to
December 30, 1999. From this table, we see that individual investors play the
largest role in Thailand’s equity market. Foreign investors also play an important
role; however, institutional investors take a relatively small share in the market.
Table 1b shows the mean, standard deviation, and minimum and maximum
values of the daily log index return, daily net buying and daily net buying ratio of
foreigners, institutions and individuals. The net buying or net buying ratio of
each investor group was not significantly different from zero for any sub-period.
The index return became more volatile during the crisis: the maximum one-day
return was over 10 percent and the index dropped by up to 10 percent in a single
day. Daily net buying of institutional investors generally increased during the

12
There was a massive attack on the Thai Baht in mid-May 1997 (Ito (1999)). Although the Central
Bank of Thailand managed to keep the exchange rate fixed until July 2, several studies in the
literature indicate structural breaks before July 1997 (Kallberg, Liu and Pasquariello (2003)).
Asian crisis. However, there is no trend or systematic change observed in either
net buying or the net buying ratio.

Table 1a
Summary statistics of daily equity sales and purchases in million Thai Baht

Foreigners Institutions Individuals

(million baht) Buying Selling Buying Selling Buying Selling

All Samples
Daily Mean 1,701 1,607 366 412 2,721 2,769
Standard Deviation 1,168 952 308 354 2,424 2,582
Minimum 122 130 19 17 266 235
Maximum 9,670 7,756 2,459 3,435 21,925 21,946

The sample period is from 3 January 1996 to 30 December 1999 and represents 979 trading days.

Table 1b
Daily stock return, net buying and net buying ratio of foreign, institutional and individual investors

Mean Std Dev Minimum Maximum

Daily Log Return of SET Index:
Before Crisis -0.0027 0.0152 -0.0618 0.0493
During Crisis -0.0027 0.0272 -0.1003 0.1135
After Crisis 0.0020 0.0245 -0.0778 0.1023

Net Buying of Investor Groups ( in million Baht )

Before Crisis: Foreigners 59.9 779.8 -3299.5 5501.6
Institutions -80.7 333.7 -1650.9 1930.7
Individuals 20.9 641.9 -3983.7 2555.6

During Crisis: Foreigners 216.9 615.4 -1912.4 4844.9

Institutions -48.9 178.1 -1008.7 935.0
Individuals -168.0 585.2 -4154.0 1936.2

After Crisis: Foreigners -4.6 517.6 -1373.8 2480.1

Institutions -0.4 158.5 -655.5 760.3
Individuals 5.0 525.5 -2814.1 1610.2

Net Buying Ratio of Investor Groups

Before Crisis: Foreigners 0.0060 0.1630 -0.3876 0.5733
Institutions -0.0651 0.2314 -0.7203 0.6460
Individuals 0.0193 0.1109 -0.3503 0.4592

During Crisis: Foreigners 0.0571 0.1595 -0.3654 0.6239

Institutions -0.1212 0.3465 -0.8774 0.8880
Individuals -0.0262 0.1327 -0.6529 0.3442

After Crisis: Foreigners -0.0162 0.1109 -0.3304 0.3003

Institutions 0.0016 0.2278 -0.6667 0.6128
Individuals 0.0125 0.0613 -0.1933 0.2592

This table summarizes the basic statistics for foreign, institutional and individual investor's
daily net buying (NB) and net buying ratio (NBR) of equities on the Stock Exchange of Thailand.
The NB for investor type i during day t is computed as
NBit = (Purchasing Valueit - Selling Valueit ),
and the NBR for investor type i during day t is computed as
NBRit = (Purchasing Valueit - Selling Valueit )/(Purchasing Valueit + Selling Valueit ).
The sample period is from 3 January 1996 to 30 June 1997, from 2 July 1997 to 30 September
1998 and from 1 October 1998 to 30 December 1999 for before crisis (365 trading days),
during crisis (307 trading days) and after crisis (307 trading days), respectively.
 Figure 3 shows the daily share of buying and selling of each investor group out
of all the trades during our sample period. From this, we see that there was an
increase in foreigner’s relative trading share during the Asian Crisis. We observe
a decrease in foreign investors’ trading share relative to the trading share of
domestic individuals from the third quarter of 1998; however, the change was not
drastic. As far as the focus on the stock market is concerned, we do not observe a
large movement in the trading share of foreign investors before and after the
crisis, at least in Thailand13.

FOREIGN BUY FOREIGN SELL INST BUY INST SELL INDIVIDUAL BUY INDIVIDUAL SELL

100%
INDIVIDUAL SELL

80%

INDIVIDUAL BUY
60%

40%

FOREIGN SELL
20%

FOREIGN BUY
0%
960103
960213
960327
960514
960626
960808
960919
961031
961213
970127
970310
970423
970606
970718
970901
971010
971121
980108
980219
980401
980521
980702
980814
980924
981105
981218
990201
990315
990429
990614
990726
990907
991018
991129
YYMMDD
Fig. 3. Trading Share of Each Investors.

Table 2
Correlation coefficients of foreign, institutional and individual investors' daily trades

Net Buying of Investor Groups

Foreigners, Institutions Foreigners, Individuals Institutions, Individuals
Before Crisis: -0.591 -0.908 0.198

During Crisis: -0.310 -0.957 0.022

After Crisis: -0.103 -0.954 -0.200

Net Buying Ratio of Investor Groups

Foreigners, Institutions Foreigners, Individuals Institutions, Individuals
Before Crisis: -0.599 -0.792 0.170

During Crisis: -0.459 -0.815 0.094

After Crisis: -0.248 -0.869 -0.060

Correlation coefficients are reported between Daily Net Buying and Net Buying Ratio of foreign, institutional
and individual investors.
The sample period is from 3 January 1996 to 30 June 1997, from 2 July 1997 to 30 September
1998 and from 1 October 1998 to 30 December 1999 for before crisis (365 trading days),
during crisis (307 trading days) and after crisis (307 trading days), respectively.

Table 2 shows the correlation coefficients between each investor group’s net
buying and also between each investors’ net buying ratios. Our results indicate
that foreign investors’ buying is negatively related to domestic individual

13This is related to the ‘open door’ policy put forward by the Federal Reserve Board (1999) and
Greenspan (1999).
investors’ buying and also to domestic institutional investors’ buying. The
negative relation is stronger between foreigners and individuals, and did not
disappear during or after the crisis. The correlation between each investor class
and stock return is shown in Table 3. As shown, foreigners’ net buying and the
net buying ratio is positively correlated with the contemporaneous stock return,
whereas individuals’ net buying ratio is negatively correlated with the stock
return. These relations remain for their own lagged variables, albeit for short
intervals of only a few days. Institutions’ buying was negatively correlated to its
own lagged variables before the crisis, but the relationship disappeared during
and after the crisis.
Table 3
Correllation coefficients of daily stock return and net buying and net buying ratio of foreign, institutional and individual investors

Net Buying of Investor Groups

Before Crisis: During Crisis: After Crisis:
Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return
Return: t=0 0.346 -0.223 -0.305 1.000 0.372 -0.050 -0.376 1.000 0.436 0.106 -0.462 1.000

t=1 0.066 -0.069 -0.045 0.127 0.151 -0.065 -0.139 0.231 0.187 0.075 -0.206 0.123
t=2 -0.014 -0.023 0.029 0.074 0.055 -0.142 -0.015 -0.029 0.102 -0.080 -0.077 0.050
t=3 -0.030 0.087 -0.008 0.001 0.062 -0.074 -0.043 -0.010 0.050 -0.047 -0.035 -0.024
t=4 -0.022 0.026 0.013 -0.083 0.100 -0.051 -0.089 0.022 0.041 0.039 -0.052 -0.081
t=5 0.023 0.009 -0.033 -0.064 0.023 -0.067 -0.004 -0.002 -0.013 -0.020 0.019 -0.064

Net Buying Ratio of Investor Groups

Before Crisis: During Crisis: After Crisis:
Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return
Return: t=0 0.301 -0.182 -0.272 1.000 0.306 -0.161 -0.257 1.000 0.384 0.051 -0.417 1.000

t=1 0.075 -0.032 -0.052 0.127 0.206 -0.097 -0.152 0.231 0.225 0.050 -0.223 0.123
t=2 -0.012 -0.033 0.067 0.074 0.150 -0.195 -0.053 -0.029 0.114 -0.055 -0.069 0.050
t=3 -0.023 0.081 -0.021 0.001 0.125 -0.075 -0.084 -0.010 0.065 -0.045 -0.054 -0.024
t=4 -0.039 0.034 0.013 -0.083 0.089 -0.055 -0.089 0.022 -0.003 0.068 -0.033 -0.081
t=5 -0.028 -0.012 -0.011 -0.064 0.039 -0.111 0.010 -0.002 0.020 -0.015 -0.047 -0.064

Return indicates daily return of the SET index for day of the investment flow (t=0) and the following five days (t=1, 2, 3, 4, and 5). The table represents 979 samples.

In Table 4, each investor group’s trade and the index return are described
using VAR analysis with 10-day lags. This is because, although the Akaike
Information Criteria and Schwartz Bayes Information Criteria select models with
longer lags, most of the coefficients become insignificant14. Table 4 indicates that
foreigners tend to increase net buying after very recent (one day) rises in the
stock price, whereas domestic investors increase net buying after very recent
(one-day) falls. The results also indicate subsequent increases/decreases in stock
prices after foreigners’ buying/selling and subsequent decreases/increases in
stock prices after foreigners’ selling/buying during the crisis. The only significant
variable representing the investors’ position during the crisis is the one-day lag of
foreigner’s trading: from today’s foreigner positive net investment flow, we expect
tomorrow’s positive stock return.

14
The basic characteristics of the results did not change by altering the lags.
 Table 4a
VAR statistics using 10 day lags: before crisis

Foreigners Institutions Individuals SET Index

Foreigners -1 0.434 *** 0.021 -0.140 * 0.013
-2 -0.025 0.091 0.092 -0.005
-3 -0.042 0.295 -0.165 * 0.006
-4 -0.039 -0.067 0.098 -0.007
-5 0.024 0.277 -0.059 -0.028 *
-6 0.002 0.068 0.057 -0.002
-7 0.019 -0.149 0.053 0.030 *
-8 0.248 ** -0.075 -0.202 ** -0.018
-9 -0.109 -0.177 0.112 0.020
-10 0.194 * -0.261 -0.062 0.020
Institutions -1 0.005 0.290 *** 0.008 0.002
-2 -0.020 0.045 0.034 -0.005
-3 -0.015 0.056 -0.027 0.008
-4 -0.031 0.035 0.040 -0.002
-5 -0.004 -0.001 0.017 -0.013 *
-6 -0.058 0.057 0.051 -0.004
-7 0.030 -0.004 0.011 0.007
-8 0.102 ** -0.040 -0.079 ** -0.004
-9 -0.032 -0.047 0.030 0.014 **
-10 0.023 -0.132 0.001 0.007
Individuals -1 -0.061 0.466 ** 0.172 * 0.005
-2 -0.019 0.251 0.075 0.016
-3 -0.314 ** 0.601 ** -0.061 -0.014
-4 -0.011 0.090 0.053 -0.004
-5 0.009 0.109 0.054 -0.041 **
-6 -0.075 0.271 0.062 0.001
-7 -0.057 -0.059 0.065 0.027
-8 0.301 ** -0.335 -0.177 * 0.005
-9 -0.264 ** -0.017 0.169 0.014
-10 0.175 -0.272 -0.084 0.010
SET Index -1 2.984 *** -0.611 -2.415 *** 0.101 *
-2 0.683 -0.620 -0.276 0.044
-3 0.119 0.696 -0.487 0.025
-4 -0.978 ** 0.004 0.813 ** -0.114 *
-5 -0.374 0.934 0.439 -0.041
-6 -0.398 -0.449 0.411 -0.104
-7 -0.009 -0.323 -0.081 -0.026
-8 -0.519 0.139 0.426 -0.058
-9 -0.867 * 1.238 0.316 0.112
-10 -0.750 0.401 0.364 -0.013
Constant 0.007 -0.064 *** 0.018 ** -0.003 *

F (block exog) 3.371 *** 2.419 *** 3.958 *** 1.148

Adjusted R2 0.595 0.272 0.434 0.021

Schwarz Bayes I.C -1459.0

Akaike I.C. -1890.0

* **
, , and *** denotes significant at 10, 5 and 1% respectively.
Observations: 354
The results of the variance decomposition of the VAR analysis are shown in
Table 5, where the relative variance contribution is indicated. For all the
variables, the relative contribution on its own variable is strong. Among all the
variables, foreigners’ influence on its own variable and the stock returns’
influence on its own variable are most conspicuous. Individuals’ influence on its
own variable and on the institutions’ diminished during our sample period.
During the Asian Crisis, foreigner’s influence on its own trade also increased.
However, foreigners’ influence on the index return diminished.
Table 4b
VAR statistics using 10 day lags: during crisis

Foreigners Institutions Individuals SET Index

Foreigners -1 0.461 *** -0.202 -0.098 0.057 **
-2 -0.145 0.512 0.065 0.012
-3 -0.057 -0.127 0.152 0.008
-4 0.192 -0.470 -0.015 -0.023
-5 0.029 -0.108 0.052 0.011
-6 -0.049 0.321 -0.089 -0.016
-7 0.284 ** -0.782 ** -0.131 0.032
-8 -0.005 -0.119 -0.003 -0.003
-9 -0.020 -0.087 0.021 -0.004
-10 0.025 0.538 * -0.184 * 0.006
Institutions -1 -0.020 0.249 *** 0.047 0.010
-2 -0.042 0.275 *** -0.003 -0.011
-3 0.034 0.033 -0.015 0.006
-4 0.013 -0.114 0.019 -0.005
-5 0.023 0.036 -0.029 -0.003
-6 -0.038 0.050 0.006 -0.001
-7 0.014 -0.061 -0.030 0.003
-8 -0.014 -0.032 0.027 -0.002
-9 0.004 0.091 -0.004 0.002
-10 -0.009 0.100 -0.026 -0.001
Individuals -1 0.041 -0.074 0.353 *** 0.034
-2 -0.236 * 0.543 0.076 0.014
-3 -0.045 -0.019 0.103 -0.003
-4 0.024 -0.363 0.121 -0.034
-5 0.036 -0.145 0.060 0.030
-6 -0.085 0.362 -0.085 -0.023
-7 0.334 ** -0.841 ** -0.097 0.048
-8 -0.214 0.009 0.060 -0.005
-9 0.086 -0.100 -0.075 0.013
-10 -0.117 0.516 -0.086 0.003
SET Index -1 1.085 *** -0.018 -0.625 ** 0.170 ***
-2 -0.389 -0.165 0.029 -0.137 **
-3 0.051 0.466 -0.233 -0.003
-4 -0.644 ** 1.134 0.375 -0.026
-5 -0.217 1.133 -0.108 -0.007
-6 0.190 -0.574 0.110 -0.107
-7 0.095 0.643 -0.254 0.095
-8 -0.598 * 0.321 0.415 -0.047
-9 0.497 1.169 -0.488 * 0.093
-10 -0.568 * 1.560 ** 0.009 0.082
Constant 0.003 0.002 -0.003 -0.005 **

F (block exog) 1.298 1.053 1.341 0.920

Adjusted R2 0.425 0.214 0.307 0.035

Schwarz Bayes I.C -765.81

Akaike I.C. -1182.37
* **
, , and *** denotes significant at 10, 5 and 1% respectively.
Observations: 297
Table 4c
VAR statistics using 10 day lags: after crisis

Foreigners Institutions Individuals SET Index

Foreigners -1 0.197 0.703 ** -0.015 0.034
-2 0.151 -0.722 ** -0.007 0.045
-3 -0.123 0.971 *** -0.061 0.008
-4 -0.089 -0.142 0.058 -0.021
-5 -0.185 -0.109 0.070 -0.039
-6 0.071 -0.456 -0.039 0.041
-7 0.024 0.141 -0.015 0.009
-8 0.128 -0.213 -0.049 -0.010
-9 0.087 -0.240 0.016 -0.025
-10 0.002 -0.234 0.055 -0.023
Institutions -1 0.013 0.530 *** -0.025 0.012
-2 0.003 -0.059 0.002 -0.003
-3 -0.006 0.188 ** -0.021 -0.009
-4 -0.016 -0.127 0.018 0.011
-5 -0.064 0.148 * 0.023 -0.011
-6 -0.029 -0.101 0.008 0.007
-7 0.008 0.045 0.007 -0.011
-8 0.068 * -0.100 -0.032 0.010
-9 0.058 0.087 -0.022 0.000
-10 -0.011 -0.117 0.009 0.000
Individuals -1 -0.087 1.202 ** 0.231 * -0.032
-2 0.088 -1.636 *** 0.130 0.057
-3 -0.379 1.066 ** 0.030 -0.008
-4 -0.288 0.630 0.190 -0.047
-5 -0.151 -0.714 0.118 -0.072
-6 0.102 -0.412 -0.084 0.051
-7 0.077 0.485 -0.074 0.024
-8 0.183 -0.402 -0.095 0.024
-9 0.152 -0.623 0.021 -0.038
-10 0.035 -0.539 0.119 -0.033
SET Index -1 1.758 *** -0.332 -0.879 *** 0.031
-2 -0.085 -1.260 ** 0.242 -0.072
-3 -0.494 * -1.413 ** 0.322 ** -0.064
-4 -0.735 ** 0.501 0.367 ** -0.118
-5 0.044 0.711 0.015 -0.036
-6 0.631 ** -0.439 -0.266 * 0.076
-7 0.006 1.042 * -0.143 -0.030
-8 -0.396 -0.255 0.127 0.025
-9 0.226 -1.377 ** 0.027 -0.014
-10 0.150 -0.078 -0.075 0.133 *
Constant -0.011 0.014 0.006 0.003 *

F (block exog) 2.923 *** 2.005 *** 2.683 *** 1.156

Adjusted R2 0.292 0.243 0.313 0.025

Schwarz Bayes I.C -1304.82

Akaike I.C. -1724.10
* **
, , and *** denotes significant at 10, 5 and 1% respectively.
Observations: 307
Table 5
Relative variance contribution indicated as variance decomposition of VAR model

Before Crisis
Foreigners Institutions Individuals Index Return
Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return Foreigners Institutions
1 100.0 0.0 0.0 0.0 1 17.7 82.3 0.0 0.0 1 37.6 28.5 33.9 0.0 1 10.6 0.0
2 88.4 0.1 0.5 11.0 2 21.6 76.9 1.4 0.2 2 40.5 21.0 26.4 12.1 2 11.2 0.0
3 83.4 0.1 0.7 15.8 3 23.8 71.6 2.8 1.8 3 40.5 19.6 25.2 14.8 3 11.0 0.9
4 80.9 0.3 2.1 16.8 4 23.9 67.8 6.3 2.0 4 41.7 18.3 23.5 16.5 4 11.0 2.1
5 80.5 0.3 2.7 16.5 5 25.6 64.2 7.3 2.9 5 41.9 18.2 23.5 16.3 5 11.0 2.1
6 80.4 0.3 3.0 16.4 6 25.4 63.6 8.1 2.9 6 42.4 17.8 23.3 16.4 6 10.8 2.1
7 79.5 0.5 3.9 16.1 7 25.5 62.6 9.0 2.9 7 42.0 17.4 24.4 16.2 7 10.7 2.4
8 78.6 0.5 5.2 15.8 8 26.7 60.9 9.6 2.8 8 41.5 17.2 25.4 15.8 8 10.8 2.5
9 78.7 0.5 5.1 15.7 9 26.8 60.9 9.5 2.8 9 42.3 17.0 24.9 15.8 9 11.0 2.8
10 77.6 0.6 5.3 16.5 10 27.0 59.9 9.4 3.8 10 42.3 16.8 24.9 15.9 10 10.9 3.6

During Crisis
Foreigners Institutions Individuals Index Return
Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return Foreigners Institutions
1 100.0 0.0 0.0 0.0 1 13.4 86.6 0.0 0.0 1 59.5 13.3 27.3 0.0 1 5.4 0.4
2 95.6 0.4 0.0 3.9 2 14.5 85.5 0.0 0.0 2 63.7 10.4 24.2 1.6 2 7.2 0.6
3 95.1 0.6 0.5 3.9 3 14.6 84.6 0.7 0.1 3 64.5 9.9 23.5 2.2 3 7.8 1.8
4 94.6 0.6 1.0 3.8 4 15.4 83.4 1.0 0.2 4 63.7 9.7 24.0 2.6 4 8.2 1.9
5 93.3 0.7 1.2 4.8 5 16.0 82.1 1.0 0.9 5 62.9 9.5 24.6 3.0 5 8.4 1.8
6 92.6 1.0 1.3 5.1 6 16.0 81.2 1.0 1.8 6 62.1 10.0 25.0 2.9 6 8.5 2.4
7 92.4 1.0 1.6 5.0 7 16.0 80.7 1.5 1.8 7 62.2 10.0 24.9 3.0 7 8.4 2.4
8 91.8 1.3 1.9 5.0 8 16.2 79.4 2.2 2.2 8 62.1 10.0 24.7 3.2 8 8.3 2.8
9 91.6 1.3 1.8 5.3 9 16.4 78.5 2.7 2.4 9 62.4 9.9 24.4 3.3 9 8.3 2.9
10 91.5 1.4 1.8 5.4 10 16.7 77.0 3.0 3.3 10 62.3 9.9 24.3 3.5 10 8.3 3.0

After Crisis
Foreigners Institutions Individuals Index Return
Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return Foreigners Institutions Individuals Return Foreigners Institutions
1 100.0 0.0 0.0 0.0 1 10.9 89.1 0.0 0.0 1 67.8 8.1 24.1 0.0 1 9.4 2.5
2 85.5 0.9 0.5 13.1 2 10.0 87.9 2.0 0.1 2 58.5 9.8 20.3 11.4 2 11.6 3.7
3 85.2 1.4 0.5 12.9 3 9.7 86.2 2.3 1.7 3 58.7 11.0 19.7 10.7 3 13.0 3.7
4 84.8 1.6 0.8 12.7 4 9.7 83.3 2.8 4.2 4 58.7 11.8 18.8 10.8 4 14.0 3.9
5 82.8 1.6 1.3 14.3 5 10.0 82.2 3.6 4.2 5 58.0 11.4 18.5 12.2 5 13.7 4.6
6 81.6 1.7 2.3 14.4 6 9.8 82.5 3.6 4.1 6 57.1 11.2 19.3 12.3 6 13.6 4.6
7 80.5 2.2 3.0 14.3 7 10.3 81.9 3.7 4.1 7 56.9 11.1 19.7 12.3 7 13.7 4.7
8 80.3 2.2 3.1 14.4 8 10.9 81.1 3.7 4.4 8 56.7 11.1 19.6 12.7 8 13.8 5.2
9 80.0 2.2 3.4 14.4 9 11.2 80.6 3.7 4.5 9 56.6 11.1 19.7 12.7 9 14.3 5.1
10 78.4 3.0 3.7 14.9 10 11.9 78.1 3.9 6.1 10 56.5 11.3 19.6 12.6 10 14.3 5.3

Figure 4 shows the accumulated net buying of each of the three investor
groups. This shows that foreigners were net-buyers for most of the sample period.
Importantly, they had a net sold position from the middle of 1996 to early 1997:
the same period preceding the outbreak of the crisis and when the SET index
moved downward. It is then surprising to see that foreign investors increased
their net investment during the Asian crisis. In fact, foreign investors never
withdrew from Thailand. Throughout our whole sample period, domestic
investors traded in the opposite direction to foreign investors. Among the
domestic investors, individuals may then have been absorbing the foreigners’
trade demand.

Foreigners Institutions Individuals

120000
100000
80000
60000
40000
20000
0
-20000
-40000
-60000
-80000
960103
960213
960327
960514
960626
960808
960919
961031
961213
970127
970310
970423
970606
970718
970901
971010
971121
980108
980219
980401
980521
980702
980814
980924
981105
981218
990201
990315
990429
990614
990726
990907
991018
991129

YYMMDD
Fig. 4. Accumulated Net Buying of Foreign, Institutional and Individual Investors.

Figure 5 shows the contemporaneous relation between the stock return and
the net investment of each investor i aggregated to time t (Murase (1999) and
Kamesaka and Wang (2001)).
Aggregate Simultaneo us Return it = ∑ (Buying is - Selling is ) R s
s =t

, (1)
where Rt+k is estimated as daily log return of the closing stock price:
R t+k = log ( P t+k / P t+k-1 ).
We merely look at the simultaneous relation between the stock return and the
net investment of each investor groups, and it is not intended to evaluate their
trading performance. Rather, we understand this to be a “behavioral measure”
that describes the relation (covariance) between the stock return and the net
investment flow. By aggregating to time t, we can view the contribution of each
increment of every observing day.

Foreigners Institutions Individuals

6000

4000

2000
Million Baht

-2000

-4000

-6000
960104
960207
960314
960422
960528
960704
960808
960912
961016
961120
961226
970131
970307
970411
970522
970625
970731
970904
971008
971112
971218
980126
980302
980403
980518
980619
980727
980831
981002
981106
981214
990119
990222
990329
990510
990614
990719
990824
990927
991101
991203
YYMMDD
Fig. 5. Foreign, Domestic Institutional and Individual Investors' Net Buying and Simultaneous Stock Return.

There is a well-established argument for establishing ‘early warning systems’

in order to prevent a financial crisis15. We consider that the above indicator is a
timely indicator representing the behavior of various investor groups, including
foreign investors. If the regulatory sector of a country is keen to receive foreign
investment and record numbers of foreigners trading every minute, this indicator
will capture foreign investor’s overall trading pattern. Although the trades of
foreign, domestic institutional and individual investors are volatile in Thailand,
we observe quite stable relationships between investors’ net positions and stock
returns. That is, foreign investors increase their net buying (net investment flow)
when the stock price is increasing, and domestic investors increase their net
buying (net investment flow) when the stock price is falling.

3. Investment Performance of Foreign, Institutional and Individual Investors in

Thailand
To evaluate which investor groups traded with good timing in Thailand’s
equity market before, during and after the Asian crisis, we first estimate the
aggregate following one day return based on each investor’s net investment flow
(Grinblatt and Titman (1993), Murase (1999) and Kamesaka, Nofsinger and
Kawakita (2003)16:

15
See Kaminsky, Lizondo and Reinhart (1998) and IMF (1998).
16
Karolyi (2002), Kamesaka and Wang (2001) and Lu Zheng (1999) also use this method.
 Aggregate Following One Day Return it = ∑ (Buyingis - Sellingis ) Rs +1
s =t

. (2)

Foreigners Institutions Individuals

2000

1500

1000

500
Million Baht

-500

-1000

-1500

-2000
960104
960207
960314
960422
960528
960704
960808
960912
961016
961120
961226
970131
970307
970411
970522
970625
970731
970904
971008
971112
971218
980126
980302
980403
980518
980619
980727
980831
981002
981106
981214
990119
990222
990329
990510
990614
990719
990824
990927
991101
991203
YYMMDD
Fig. 6. Investment Performance of Foreign, Domestic Institutional and Individual Investors
Evaluated by Return of the Following Day

Figure 6 shows the performance measure of foreign, domestic institutional and

individual investors. Without doubt, foreign investors traded with good timing in
all stages of the sample period. In contrast, individual investors trade with bad
timing in any of the three stages of the crisis. Domestic institutions neither earn
profits nor suffer losses during these periods. Odean (1999) examines return
patterns before and after the transactions of the accounts of a discount brokerage
house and shows that individual investors lower their returns through trading.
As discussed in his paper on US individual investors, the bad performance of
individual investors in Thailand may also be due to the mistiming of short-term
momentum cycles. Nofsinger and Sias (1999) state that individual investors may
be among the first to suffer losses. Our results are consistent with these findings.
Figures 7a, 7b and 7c show the relationship between the stock return and the
net buying of foreign, domestic institutional and individual investors, respectively,
according to the following indicator:
Return Indicator i (u) = ∑k =0 ∑ (Buying it - Selling it ) R t + k ,
t
(3)
where simultaneous or following day k return of net buying of investor i is
aggregated for before, during and after the crisis period, respectively, and also
aggregated to the following day u 17 . Although there was a large change in
Thailand’s market condition, the stock price continued to increase/decrease after
foreign investors’ buying/selling, and the magnitude of this did not change before,
during or after the crisis. Figure 7b indicates that there was a subsequent
fall/rise in the stock price after institution’s net buying for the sample periods of
before and during the crisis, and the stock price fall was larger during the crisis.
We also observe the stock price increase/decrease after the institution’s net
buying for the sample period after the crisis. Figure 7c indicates that the stock
price continued to fall for a few days after individual trades.

3500

3000

2500

Before Crisis
During Crisis
2000 After Crisis

1500

1000
t=0 t=+1 t=+2 t=+3 t=+4 t=+5
Fig.7a. Foreign Investor's Net Buying and the Subsequent Stock Return.

17
In Figure 7, we do not intend to evaluate the investors’ performance, and we focus solely on the relation between
the stock return and the investor groups’ net buying.
 300

200

100

-100

Before Crisis
-200
During Crisis
After Crisis
-300

-400

-500

-600
t=0 t=+1 t=+2 t=+3 t=+4 t=+5

Fig.7b. Institutional Investor's Net Buying and the Subsequent Stock Return.

-1000

-1500

-2000

Before Crisis
During Crisis
-2500
After Crisis

-3000

-3500
t=0 t=+1 t=+2 t=+3 t=+4 t=+5

Fig.7c. Individual Investor's Net Buying and the Subsequent Stock Return.

One great concern for both the regulatory sector and market participants is an
understanding of which particular class of investors achieves good trade
performance. It is also important to know to what extent and under what
circumstances they earn profits. To answer these questions, we estimate the
aggregate stock return of several days after each investor groups’ trades,
assuming that they did not change their position for several subsequent days, by
multiplying the net investment of each investor groups by the simultaneous and
following several days’ returns, i.e., following the first day, first to second day,
second to third day, etc. We estimate the following day k return of investor i
aggregated for each quarter as follows:
 Aggregate Return i (k) = ∑t (Buying it - Selling it ) Rt + k
.
Table 6 shows each investor groups’ daily investment profit aggregated for
each quarter. Foreigners’ following one-day profit reached 358 million Baht by
aggregating for 18 months before the crisis period from January 1996 to June
1997, assuming that they did not change their position until the closing of the
following day. Their profit was then 492 and 599 million Baht, provided that they
kept their position for the following two and three days, respectively. Foreigners’
following five-day (one week) return before the crisis period was 931 million Baht
and, if we account for half of the simultaneous return since foreigners might have
acquired half of the simultaneous stock return on average, the total profit before
the crisis period was 1671 million Baht. Similarly, the following one-day return of
foreigners was 577 million Baht during the crisis period, provided that they kept
their position until the closing of the following day. If we account for half of the
simultaneous return and the following five days’ return, foreigners’ profit was
1857 million Baht. Foreigners’ return then increased during the crisis period, and
expanded after the crisis period. Foreigners’ following one-day return is 709
million Baht and, if we account for half of the simultaneous return and the
following five days’ return, it is 3045 million Baht.

Table 6
Investors' trade performance based on net buying in million Baht

Foreigners Institutions Individuals

t=0 t=+1 t=+2 t=+3 t=+4 t=+5 t=0 t=+1 t=+2 t=+3 t=+4 t=+5 t=0 t=+1 t=+2 t=+3 t=+4 t=+5
Before Crisis
1996 I 334.3 -56.1 -41.4 -101.5 -50.2 80.5 -117.5 8.1 5.4 21.3 -12.3 -0.7 -216.7 48.0 36.0 80.2 62.6 -79.8
II 111.5 -63.1 -50.6 -49.6 -26.3 -22.0 1.3 15.0 -9.9 55.5 37.8 13.1 -112.8 48.0 60.5 -6.0 -11.5 8.9
III 223.2 111.5 -43.5 -84.7 -117.1 -163.6 -93.0 31.4 10.1 70.5 -7.7 30.0 -130.2 -142.9 33.4 14.2 124.8 133.5
IV 511.9 209.5 112.1 122.6 119.5 110.0 -146.7 -90.7 -0.2 39.7 56.1 4.0 -365.2 -118.8 -111.9 -162.4 -175.6 -114.1
1997 I 143.0 25.3 -39.6 -112.3 -124.6 1.2 -3.5 -17.1 -1.5 46.3 64.9 39.2 -139.5 -8.2 41.1 66.0 59.7 -40.4
II 156.6 131.0 196.8 332.1 314.4 210.3 19.8 -36.0 -46.7 -81.0 -62.0 -30.7 -176.5 -95.0 -150.1 -251.1 -252.4 -179.7
Sub-Total 1480.4 358.2 133.8 106.6 115.8 216.6 -339.5 -89.2 -42.8 152.3 76.7 54.9 -1140.9 -268.9 -90.9 -259.0 -192.5 -271.6

During Crisis
1997 III 585.4 95.8 -86.6 53.9 163.4 -177.4 53.2 -47.1 -29.9 -57.5 -85.4 -2.9 -638.6 -48.7 116.5 3.6 -78.0 180.3
IV 22.6 25.1 -1.2 3.7 65.8 -69.7 -55.9 4.6 0.8 14.8 48.0 37.9 33.3 -29.7 0.5 -18.5 -113.8 31.8
1998 I 870.5 438.4 143.5 -13.8 88.6 173.6 56.1 -38.4 -106.7 -38.9 -3.9 -73.0 -926.5 -400.0 -36.8 52.7 -84.8 -100.6
II 65.5 3.6 -1.8 39.6 -16.5 -25.4 -31.2 -0.1 -0.9 1.1 9.8 3.3 -34.3 -3.5 2.7 -40.7 6.6 22.1
III 211.9 14.4 43.2 18.3 -16.0 16.9 -69.7 28.5 -25.1 21.7 7.0 -16.3 -142.1 -42.9 -18.2 -40.0 9.0 -0.6
Sub-Total 1755.8 577.4 97.1 101.7 285.4 -82.0 -47.6 -52.5 -161.8 -58.8 -24.5 -51.1 -1708.2 -524.8 64.7 -42.9 -260.9 133.1

After Crisis
1998 IV 337.8 207.3 140.5 -106.5 -38.6 -59.5 33.2 28.6 -93.3 -25.5 -15.5 -34.9 -371.0 -235.9 -47.2 132.0 54.1 94.4
1999 I 315.8 92.7 29.4 25.0 -25.0 18.2 51.1 -11.7 9.3 -4.5 7.1 -16.0 -366.9 -81.0 -38.7 -20.5 17.9 -2.2
II 774.3 210.3 121.5 181.7 194.3 16.1 10.6 44.8 -17.2 -49.3 35.2 39.5 -784.9 -255.1 -104.2 -132.4 -229.5 -55.6
III 186.8 202.3 64.6 76.5 -56.4 18.0 3.7 -4.9 3.0 7.1 14.0 -19.3 -190.5 -197.4 -67.6 -83.6 42.4 1.3
IV 47.1 -3.4 30.8 9.7 78.0 -43.9 25.1 30.1 5.0 16.8 4.4 7.0 -72.2 -26.7 -35.8 -26.5 -82.5 36.8
Sub-Total 1661.9 709.2 386.8 186.4 152.3 -51.1 123.6 86.9 -93.2 -55.4 45.3 -23.7 -1785.5 -796.1 -293.6 -131.1 -197.6 74.8

The sample period is from 3 January 1996 to 30 June 1997, from 2 July 1997 to 30 September
1998 and from 1 October 1998 to 30 December 1999 for before crisis (365 trading days),
during crisis (307 trading days) and after crisis (307 trading days), respectively.

Table 6 shows that foreign investors’ profits turn negative during the crisis
and after the crisis sub-periods on the following fifth day if they did not close
their position until that time. Therefore, we estimate their maximum short-term
speculative profit by following the five days’ return, including half of the
simultaneous return. The maximum short-term speculative profit of foreigners is
1671, 1857 and 2215 million Baht, respectively, before, during and after the crisis
period. If we consider that foreigners earn half of the simultaneous return on
average, their minimum return is 740, 878 and 831 million Baht, respectively,
before, during and after the crisis period. Their following one-day return is lower
than half of the simultaneous return of the corresponding sub-period, being 358,
577 and 709 million Baht, respectively. We conservatively consider this lower
value as the minimum profit of foreigner speculative trade. When we consider
that the daily total equity trading by foreign investors is 3300 million Baht, their
total return after deducting their trading cost is negative. However, we should
note that their gross profit is earned at the expense of Thailand’s domestic
investors. That is, there was a wealth transfer from domestic to foreign investors.
Institutional investors’ stock investment return was relatively small in
Thailand. Their performance was worse during the Asian crisis. However, they
did not earn profits nor suffer losses before and after the crisis period. Foreigner’s
positive return was mainly brought out by individual investors’ losses, and their
performance worsens following the crisis. It is puzzling to know how individuals
continue to trade with bad timing and remain in the market. Some behavioral
description such as their reluctance to recognize their under-performance (Odean
(1998)) might explain this phenomenon.

Table 7
Foreign investors' trade performance based on net buying in million US dollar

t=0 t=+1 t=+2 t=+3 t=+4 t=+5

Before Crisis 1996 I 12.58 -2.09 -1.68 -5.13 -0.16 3.23

II 4.49 -2.54 -2.25 -1.92 -1.55 -0.97
III 8.82 4.34 -2.26 -3.04 -5.16 -6.25
IV 20.42 8.91 4.64 4.77 4.93 4.04
1997 I 5.99 1.25 -0.93 -4.61 -5.16 -0.12
II 6.28 -1.52 -3.37 7.72 6.02 -0.13
Sub-Total 58.57 8.35 -5.84 -2.22 -1.08 -0.20

During Crisis 1997 III 10.54 -2.05 -10.91 -3.68 3.14 -7.50
IV -1.72 -4.85 -3.82 1.34 2.58 -1.98
1998 I 23.61 12.38 5.08 1.33 4.58 8.46
II 1.56 0.10 0.17 1.44 -0.59 -1.13
III 5.81 0.84 0.61 0.31 -0.86 0.00
Sub-Total 39.79 6.42 -8.88 0.73 8.86 -2.14

After Crisis 1998 IV 9.97 5.93 4.01 -3.22 -1.37 -1.74

1999 I 9.30 2.62 0.40 0.61 -1.52 -0.61
II 23.06 6.66 3.59 5.56 5.57 0.04
III 5.70 6.47 2.56 2.55 -1.19 0.70
IV 1.21 0.19 0.59 -0.52 1.97 -1.41
Sub-Total 49.24 21.87 11.15 4.98 3.46 -3.03

The sample period is from 3 January 1996 to 30 June 1997, from 2 July 1997 to 30 September
1998 and from 1 October 1998 to 30 December 1999 for before crisis (365 trading days),
during crisis (307 trading days) and after crisis (307 trading days), respectively.

Table 7 estimates the foreign investors’ investment performance in US dollars.

On this basis, their following one-day returns are 8.4, 6.4 and 21.9 million US
dollars before, during and after the crisis period, respectively. Their following
five-day returns accounting for half of the simultaneous day returns are 28.3,
24.9 and 63.0 million US dollars, respectively. The superiority of foreigners in
market timing is then also shown by the US dollar-based stock return. It is thus
surprising to find that their speculative profit is stable in US dollar currency,
regardless of Thailand’s highly volatile currency and stock markets. Considering
the fact that the Thai currency fluctuated between 18 and 55 Baht to the US
dollar during the sample period, we find that foreign investor’s return was, on
average, negative after deducting their transaction cost. As Mahathir (1997),
Krugman (1998), Bhagwati (1998) and Stiglitz (1998) refer in the early stage of
the Asian crisis, regulatory sectors began to place more importance on
understanding the nature of short-term international capital flows. Our results
from Thailand’s equity market indicate that “the cost of the Asian crisis” is
imposed on Thai equity investors. Controlling capital flow by introducing Tobin’s
tax (Tobin (1974)) may well have improved Thailand’s welfare. When we consider
our results from the viewpoint of macroeconomics policy, the imposition of short-
term capital flow restrictions may have been the best policy by, at least partially
“overcoming the macroeconomics policy tri-lemma”.
4. Conclusion
This paper investigates domestic individual, institutional and foreign investor
behavior before and after the Asian crisis using daily buying and selling flows
from Thailand. We observe stock price increases before foreign investor’s net
investment flow (net buying). The stock price also increases while foreigners
increase net buying and also after trading, regardless of changes in the market’s
condition and the outbreak of the Asian crisis. Domestic individuals were found
to be buying after the stock price had fallen. The stock price continued to fall
while they increased net investment flow and after they had increased the net
investment flow.
To examine which groups of investors were making profits before and after the
Asian crisis, we estimated aggregate stock returns of several days following each
investor groups’ trade, assuming they did not change their position for the
subsequent several days. Foreigners’ following one-day profits were 358, 577 and
709 million Baht, respectively before, during and after the crisis period. The
foreigners’ profits were 1671, 1857 and 3045 million Baht, respectively, before,
during and after the crisis period, provided that they kept their position until the
closing of following fifth day and by accounting for half of the simultaneous
return. Foreigners did not draw out of the Thailand’s equity market with the
outbreak of the Asian crisis: rather, they increased their aggregate net
investment flow during the crisis and continued to profit from local investors.
Foreign investor’s short-term speculative performance is then found to be
surprisingly stable in the disordered Thai market, as if they are foreseeing the
following day’s stock price movement. Superiority in foreigner’s market timing is
also apparent after accounting for changes in the Thai Baht by estimating US
dollar-based returns. However, average foreign investors do not earn positive
profits when trading costs are taken into account. Nevertheless, there was still a
wealth transfer from domestic to foreign investors. However, institutional
investors’ stock investment returns in Thailand were not large, and foreigner
returns were mainly brought about by individual investor losses.
The evaluation methods used in this paper capture the timely trading
exposure of foreign investors in stock markets. Our behavioral measures capture
every increment representing the simultaneous relation between the stock return
and each investor groups’ net investment flow. By estimating stock return after
the trade of foreign investors by every increment, we can also capture the timing
consequences of overall market profit (re)distribution. Rather than estimating
statistical figures (correlation coefficients, covariance, etc.) using pooled data,
regulatory sectors are able to understand the delicate changes in short-term
capital flows. Our results indicate that the loss before, during and after the Asian
crisis were more pronounced for domestic investors. Controlling capital flow by
introducing Tobin’s tax (Tobin (1974)) may have increased Thailand’s welfare.
When we consider our results from the viewpoint of macroeconomics policy
selection, restricting short-term capital flows might have been the best selection
among the tri-lemma, by at least partially “overcoming the macroeconomics
policy tri-lemma”.
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