Foreign Investors and the FOMC Announcement Premium: Evidence From the Korean Stock Market

ABSTRACT We investigate the effect of foreign investor ownership on stock returns during domestic and US monetary policy announcement days in the Korean stock market. Using portfolios sorted on foreign ownership, we show that high foreign ownership portfolios earn higher excess returns on Federal Open Market Committee (FOMC) announcement days, whereas low foreign ownership portfolios do not. Interestingly, Bank of Korea (BK) announcements do not affect portfolio returns. Additionally, foreign investors’ trading activity increases significantly around FOMC announcements. These results are not driven by firms’ global trade dependence. Our article highlights the significant role of foreign investors in generating the FOMC announcement premium in the Korean stock market.