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This book examines the role of foreign and domestic investors in the Jakarta Stock Exchange. The first part examines whether foreign investors presence is associated with positive abnormal return, and whether the positive abnormal return can be explained by liquidity and efficiency variables. We find that foreign investors presence is associated with positive abnormal return. We find that efficiency variables explain the abnormal return better than do liquidity variables. The second part investigates whether foreign or domestic investors possess better information of certain events. We investigate cumulative returns associated with foreign and domestic investors. We find that, in the regular-market where trading is conducted through competitive continuous auction, cumulative returns associated with domestic investors are larger than those with foreign investors, suggesting that domestic investors are better informed than foreign investors. In the cross-market, where trading is conducted through negotiations, we do not find consistent result as to which group possesses better information than the other one. Our findings support information asymmetry in international markets.

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Mamduh M Hanafi is an Associate Professor at Faculty of Economics and Business, Universitas Gadjah Mada, Indonesia. He completed his PhD from University of Rhode Island, USA, MBA degree in Finance from Temple University, USA, and Drs degree in Management from Universitas Gadjah Mada, Indonesia. His email address: mamduhmh@ugm.ac.id.

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