because of their informational disadvantages. More precisely, the claim is that foreign investors, absent other sources of information, revise their expectation about the future price of a domestic stock more in line with its current price change. In this paper, we analytically show that a temporary component in stock price makes it possible that better informed or long-term investors are more extrapolative and that their greater response to a given price change is in fact short-lived. We empirically confirm these and other implications of our analysis using the quote data for the futures contracts written on a broad-based Korean stock market index. Specifically, we find that compared with domestic investors, foreign investors show a greater reaction to price changes only at a short measurement interval and that their performance is better than that of domestic investors particularly for a longer investment horizon.