The Net Buying Behaviors of Foreign Investors and Investment Trust Companies and Their Information Value

Using the data of Taiwan from 2001 to 2014, this study empirically examines the net buying behaviors and information value of foreign investors and investment trust companies. It finds the following results. First, the foreign investors’ net buying behavior tends to last to the next quarter, which is not true for investment trust companies. This implies that investment trust companies have shorter investment horizons. In addition, both foreign investors and investment trust companies are more likely to sell small-cap stocks in the following quarter. Second, foreign investors prefer mid- and large-cap stocks, while investment trust companies incline to invest in small-cap stocks. Third, the abnormal return of the top ten net buying targets of investment trust companies is higher than that of foreign investors, and both are significantly positive. Fourth, holding either the foreign investors’ 1st and 2nd quarter targets, or the investment trust companies’ 2nd quarter targets in the following quarter can have significantly positive abnormal returns. Finally, based on the positive correlation of foreign investors’ net buying behavior between adjacent quarters, there is no evidence of window dressing for them. As for investment trust companies, their shorter investment horizon and the fact that their 4th quarter targets significantly underperform the benchmark in the 1st quarter of the next year suggest that they may do window dressing near the year end.