ABSTRACT This paper investigates the impact of foreign institutional investors on valuation, liquidity and volatility in the Saudi stock exchange for the post-liberalization period. Saudi regulators allowed the foreign investment community to invest in the Tadawul All Share Index (TASI) in June 2015. Firstly, the paper finds a positive change in abnormal returns in the three-year post-liberalization period compared to the three-year non-liberalization period (pre-period), suggesting that the entry of qualified foreign institutional investors (QFIIs) benefited security valuation. Further, the higher valuation result is consistent with the prediction of standard international asset pricing models, that stock market liberalization may reduce the liberalizing country’s cost of equity capital by allowing for risk sharing between domestic and foreign agents. Secondly, contrary to the regulators/policymakers’ intention and empirical evidence, the liquidity proxies document mixed evidence. Lastly, this study finds mixed evidence in the price volatility measures. However, the volatility and liquidity finding suggests that the presence of foreign institutional investors is not the source of excess volatility or high turnover on local bourses. Overall, the evidence, on average, shows some signs of improvement for different market efficiency measures during the post-liberalization period compared to the pre-liberalization period. The less than expected improvement in Tadawul during the post-period implies that the Saudi financial regulator’s incentive of opening the TASI for QFIIs coincides with economic vulnerabilities for the Kingdom, stringent QFIIs regulation and weak investor protection laws.

中文翻译：

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外国投资者如何影响股市？沙特阿拉伯的经验

摘要本文研究了自由化后时期外国机构投资者对沙特证券交易所估值，流动性和波动性的影响。沙特监管机构于2015年6月允许外国投资界投资Tadawul全股票指数（TASI）。首先，该文件发现，在自由化后的三年中，非三年期的非正常收益率出现了正向变化。开放时期（期初），表明合格的外国机构投资者（QFII）的进入使证券估值受益。此外，较高的估值结果与标准国际资产定价模型的预测相符，股票市场的自由化可以通过允许国内外代理人分担风险来降低自由化国家的股本成本。其次，与监管机构/政策制定者的意图和经验证据相反，流动性代理证明了混合证据。最后，本研究在价格波动性测度中发现了混合的证据。但是，波动性和流动性的发现表明，外国机构投资者的存在并不是过度波动或本地交易所营业额高的来源。总体而言，与解放前时期相比，平均而言，证据显示在解放后时期，不同的市场效率措施有所改善。