The interaction between foreigners' trading and stock market returns in emerging Europe

This paper presents the first comprehensive study of foreigners' trading in European emerging stock markets, using complete data compiled at the destination. We also compare European results to Asia, to which available evidence is mainly confined. The findings provide new insight on foreigners' trading: in addition to rebalancing, risk appetite and global information are global drivers of net foreign flows. Foreigners' negative-feedback-trade with respect to local returns at longer horizons. They do so with an asymmetry: they sell following increases but do not buy following declines. Net foreign flow persistence decreases with local return volatility. •The first comprehensive study of foreigners' trading in European emerging stock markets using novel data.•Risk appetite and global emerging-market returns are significant global drivers of net foreign flows.•Foreigners negative-feedback-trade with respect to local returns at the monthly frequency.•Negative-feedback-trading asymmetry: foreigners sell after increases, but do not buy after declines.•Net flow persistence decreases with local return volatility.