Change in Foreign Investors’ Strategy From Value Investment to High Frequency Trading

Abstract

The recent trading stocks and trading patterns of foreigners are different from those evaluated in the literature. Considering this, this study analyzed the changes in foreign investors’ strategy regarding stocks listed on the Korea Exchange from 2005 to 2022. The main results are as follows. First, the top 10 foreigners in transaction value shifted from intensively investing in blue-chip stocks to diversifying investments in multiple stocks. Second, foreigners who trade more than 1,000 stocks a day on average have become a new leading force. Third, as regulations on high frequency trading in the United States and Europe were strengthened, foreigners are moving to Asia for regulation arbitrage. The study also shows that the leading force has shifted from value investment trading to high frequency trading in the domestic stock market.