Author : Daisoon Kim(NC State University), Jee Won Park(Korea Institute for International Economic Policy), Inhwan So(Bank of Korea)

<Abstract>

A small group of large institutional investors (investment giants) takes the lion’s share of cross-border equity flows into emerging markets. This paper examines their behavior and market impact through a theoretical framework in which investors consider both market fundamentals and aggregate behavior. In equilibrium, a single investment giant moves first, setting market direction and providing information to a continuum of typical investors. Compared to a simultaneous-move strategy, this directional leadership increases the giant’s ex-ante payoff while establishing the predictability and outsized influence of its decisions. Empirically, we introduce contrarian investment (excess investment growth relative to peers or the market) to isolate the giants’ idiosyncratic influence from the shared macroeconomic fundamentals.

Using fund-level data, we find that investor flows, aggregate flows, stock returns, and exchange rates persistently increase following giants’ contrarian flows, demonstrating their predictive power. These findings suggest monitoring giants as early indicators of financial market movements in emerging economies.