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Do foreign purchases of U.S. stocks help the U.S. stock market?

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  • Lizardo, Radhamés A.
  • Mollick, André V.
Abstract
This paper investigates the relationship between the U.S. S&P 500 stock market and purchases of U.S. corporation stocks by foreign investors. Estimations using monthly data from 1978:1 to 2008:7 under various methodologies show that, controlling for asset prices (interest rates and the yield curve) and inflation, purchases of U.S. stocks by foreign investors have a positive and statistically significant impact on the U.S. stock market performance. We also show that their relationship is time variant. In a global world, the demand-side variable captured by the foreign appetite for U.S. stocks attenuates the negative effects associated with the domestic forces.

Suggested Citation

  • Lizardo, Radhamés A. & Mollick, André V., 2009. "Do foreign purchases of U.S. stocks help the U.S. stock market?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 969-986, December.
    • Handle: RePEc:eee:intfin:v:19:y:2009:i:5:p:969-986
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