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Do foreign institutional investors destabilize China's A-share markets?

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  • Schuppli, Michael
  • Bohl, Martin T.
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    Abstract

    This paper investigates the effect of foreign institutional investors on the stability of Chinese stock markets. Previous literature views this investor group as destabilizing feedback traders. We use the abolition of ownership restrictions on A shares as a natural experiment. There is strong evidence that foreign institutions have a stabilizing effect on Chinese stock markets and contribute to market efficiency. This finding is robust across exchanges, sample periods, size quintiles and alternative model specifications. By contrast, domestic investors appear to engage in positive feedback trading. Our results have important implications for market regulation.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

    Volume (Year): 20 (2010)
    Issue (Month): 1 (February)
    Pages: 36-50

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    Handle: RePEc:eee:intfin:v:20:y:2010:i:1:p:36-50

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    Web page: http://www.elsevier.com/locate/intfin

    Related research

    Keywords: Foreign institutional investors Feedback trading Chinese stock markets Regulation Ownership restrictions;

    References

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    Cited by:
    1. Janusz Brzeszczyński & Martin T. Bohl & Dobromił Serwa, 2012. "Large Capital Inflows and Stock Returnsin a Thin Market," CFI Discussion Papers 1203, Centre for Finance and Investment, Heriot Watt University.

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