We introduce the structural conditional correlation (SCC) methodology to the foreign flows literature to identify the contemporaneous return–flow interaction and provide new evidence using the first daily data from a sizeable European emerging market and comparing to Asian markets. SCC results indicate significant bilateral intraday interaction between net foreign flows and market returns, and the presence of their latent common drivers. Allowing for these effects alters previously uniform results of positive feedback trading for some Asian markets, as well as the price impact estimates. Foreigners display a sluggish response to global information, which cannot be attributed to their information disadvantage.

This paper introduces a new method for identifying the simultaneity between returns and trading flows. The proposed method enables us to identify the intraday interaction using daily data, and provides measures of the information content of trading flows, and their instantaneous response to public information and information revealed by market prices. Applying this method to daily data on investor types from the Korea Stock Exchange, we find significant intraday bi-directional interaction between flows and returns and their latent common drivers, altering some of the results of the previous literature based on Cholesky assumptions. Thus, we obtain a number of new insights concerning the behavior of investor types.