Foreigners became net sellers of Japanese equities during the Asian financial crisis in 1997. In this study, I examine whether this shift in aggregate foreign portfolio investment activity in Japan exacerbated the effect of the crisis on markets, or whether it simply reflected positive feedback trading behavior. The data drawn from weekly reports to the Tokyo Stock Exchange of aggregate purchases and sales of Japanese equities by foreigners and local institutional and individual investors. I find evidence of consistent positive-feedback trading before and during the Asian crisis among foreign investors, while Japanese banks, financial institutions, investment trusts and companies were aggressive contrarian investors. There is no evidence that this trading activity by foreigners destabilized the markets during the crisis.
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