Foreign investor heterogeneity and stock liquidity across the world

Lilian Ng, Fei Wu, Jing Yu, Bohui Zhang

Research output: Contribution to journalArticlepeer-review

37 Citations (Scopus)


This article examines whether foreign investor heterogeneity plays a role in stock liquidity in a sample of 27,828 firms from thirty-nine countries worldwide. Foreign direct ownership is negatively associated with stock liquidity, while foreign portfolio ownership is positively associated with stock liquidity. Consistent with theoretical predictions, foreign ownership explains stock liquidity through both trading activity and information channels. The value-enhancing benefits of foreign direct investors’ monitoring efforts outweigh their liquidity costs and high adverse selection premium. However, the positive impact of foreign portfolio ownership on firm performance becomes negative and is not robustly significant after controlling for liquidity.
Original languageEnglish
Pages (from-to)1867–1910
Number of pages44
JournalReview of Finance
Issue number5
Publication statusPublished - Aug 2016
Externally publishedYes


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