The disruptive market power of foreign portfolio investors in the face of tax threat

Foreign portfolio investors in emerging markets are known to exit host capital markets promptly if any policy changes impose additional costs. Based on an analysis of daily trading data during a period of tax policy uncertainty in 2015, this article looks at the consequences of FPIs withdrawal, and shows that while tax threats have a disruptive impact on the stock market, the removal of policy uncertainty does not lead to commensurate investment inflows.