Information Asymmetry, Speculation and Foreign Trading Activity: Emerging Market Evidence

This paper provides evidence on the relation between private information based trading and foreign trading activity on the Istanbul Stock Exchange (ISE). We use a recently developed model that utilizes information in volume-return dynamics of individual stocks and show that variables such as size and Tobin’s Q explain the extent of speculative activity across firms traded on the ISE. We present evidence supporting the notion that foreign trading activity is associated with informed trading on the ISE. Implications of our findings for emerging markets research are also discussed.