We examine whether there is a relationship between foreign equity trading and average total volatility, measured as the value-weighted average of stock-return variance in the Istanbul Stock Exchange. We employ foreign equity purchase and sale data to track changes in foreign equity trading, which not only enable us to capture effective foreign investor participation but also to observe the potential asymmetric effects of incoming and outgoing funds on the average total volatility. Consistent with the implications of the asymmetric information hypothesis, we find that net equity flow is positively associated with average total volatility. Furthermore, we show that net equity flow affects the average total volatility through the local and idiosyncratic volatilities, suggesting that foreign investors engage in the production of firm specific and market wide information.
Umutlu, M., Akdeniz, L., & Altay-Salih, A. (2013). Foreign Equity Trading and Average Stock-return Volatility. World Economy, 36(9), 1209-1228. https://doi.org/10.1111/twec.12011