THE EFFECT OF FOREIGN OWNERSHIP RESTRICTIONS ON STOCK-PRICE DYNAMICS

The Effect of Foreign Ownership Restrictions on Stock Price Dynamics. - This paper uses Finnish data to explore the impact of foreign ownership restrictions on the dynamic properties of domestic stock prices. These restrictions create unrestricted stocks (foreign and domestic ownership) and restricted stocks (domestic ownership). Unrestricted share prices are significantly more volatile than those of restricted shares but their means are not significantly different from each other. The returns on the two types of shares are found to be generated by an error correction model. These results support the hypothesis that the unrestricted share prices tend to overshoot relative to equilibrium with the arrival of new information.