Information, sophistication, and foreign versus domestic investors' performance

Li Wen Chen, Shane A. Johnson, Ji-chai Lin, Yu Jane Liu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

46 Citations (Scopus)


Using an intraday transaction dataset with trader identity, we study foreign and domestic investors' trading activities and investment performance ahead of open-ending events of Taiwanese closed-end funds. Simply buying the funds at a discount and holding until open-ending generates large abnormal returns. All information required to execute this strategy is made public, so the events set up natural experiments to examine how investors trade, holding constant access to information. Foreign investors are net buyers ahead of the open-endings, more than doubling their positions and earning large abnormal returns. Domestic investors are net sellers while the discounts are still large, and forego large abnormal returns. The results suggest that investor sophistication in interpreting the same information is potentially an important determinant of investment performance differences across foreign and domestic investors.
Original languageEnglish
Pages (from-to)1636-1651
Number of pages16
JournalJournal of Banking and Finance
Issue number9
Publication statusPublished - 1 Sept 2009
Externally publishedYes


  • Closed-end funds
  • Foreign and local investors
  • Home bias
  • Information asymmetry

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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