arise from cultural, geographical or language barriers by dividing foreign investors to Arab and Non-Arab. We further divide them by type into individual or institutional which can affect the information level and processing capability of the investor (Aragon et al, 2007). Studies so far suggest that individual investors are generally poor performers of equity trading (Barber et al., 2009) suggesting that a complete analysis on whether foreigners or domestic investors perform better should control for the type of investor. In measuring trading performance, we combine two main methodologies in the literature that assess performance on different levels. We measure short term trading performance using the price in Cho et al (2005). In this methodology, an investor group ‘relative ratios’ introduced is considered better in trading if they can on average buy (sell) stocks at lower (higher) prices than the value weighted average price of the trading day. However, this measure short term trading performance is in no way an indication of the ability of a certain group in making more money over their investment horizon. We therefore use two established methods for measuring long term performance: cumulative returns (Grinblatt and Titman, 1993) and trading profits (Dvorak, 2005). Both measures can better assess the market timing capabilities of certain investor groups in managing their investments to achieve higher (lower) cumulative returns (losses) or trading profits (losses). Our results so far indicate the following. Domestic institutional investors in the short term trade at significantly better prices than all other categories for single listed stocks, but only outperform foreign investors for cross-listed stocks. Domestic individuals and Non-Arab investors are at the most disadvantage in executing trades at favorable prices, especially for single listed stocks, in comparison to Domestic institutions and Arab investors. The result of the long term analysis shows a different picture. Foreign institutional investors show significantly
arise from cultural, geographical or language barriers by dividing foreign investors to Arab and Non-Arab. We further divide them by type into individual or institutional which can affect the information level and processing capability of the investor (Aragon et al, 2007). Studies so far suggest that individual investors are generally poor performers of equity trading (Barber et al., 2009) suggesting that a complete analysis on whether foreigners or domestic investors perform better should control for the type of investor. In measuring trading performance, we combine two main methodologies in the literature that assess performance on different levels. We measure short term trading performance using the ‘relative price ratios’ introduced in Cho et al (2005). In this methodology, an investor group is considered better in trading if they can on average buy (sell) stocks at lower (higher) prices than the value weighted average price of the trading day. However, this measure short term trading performance is in no way an indication of the ability of a certain group in making more money over their investment horizon. We therefore use two established methods for measuring long term performance: cumulative returns (Grinblatt and Titman, 1993) and trading profits (Dvorak, 2005). Both measures can better assess the market timing capabilities of certain investor groups in managing their investments to achieve higher (lower) cumulative returns (losses) or trading profits (losses). Our results so far indicate the following. Domestic institutional investors in the short term trade at significantly better prices than all other categories for single listed stocks, but only outperform foreign investors for cross-listed stocks. Domestic individuals and Non-Arab investors are at the most disadvantage in executing trades at favorable prices, especially for single listed stocks, in comparison to Domestic institutions and Arab investors. The result of the long term analysis shows a different picture. Foreign institutional investors show significantly
214_aidea2013_banking-and-finance.docx