Foreign Trades from Tax Havens on the KOSDAQ
Korean Journal of Financial Studies
1) This study uses Korean KOSDAQ market data to verify whether foreign trades from tax havens have significant stock return predictability. To do this, we first examine the amount of foreign transactions by country and then define tax havens as the five largest havens as designated by the OECD (the Cayman Islands, Bermuda, US Virgin Islands, British Virgin Islands, and the Bahamas). They account for 14.22% of the total foreign transactions on the KOSDAQ. The results on the return predictability
... turn predictability of tax haven trades are as follows. First, when constructing the portfolio, the hedge portfolio, which buys the portfolio with the highest net purchase and sells the one with the lowest, has a significant return of 0.61% per day (13.42% per month). The statistical significance of hedge portfolio returns remains even if the holding period is increased by five days. In the regression analysis, the tax haven net purchases significantly predict the stock return of the next day. In particular, the magnitude of the stock return predictability of the KOSDAQ market is much stronger than that of the KOSPI market reported in previous research (0.28% per day). This is further evidence that tax haven foreigners in the Korean stock market are informed traders.