IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

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

  • Schuppli, Michael
  • Bohl, Martin T.
Registered author(s):

    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.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S1042-4431(09)00049-3
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    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

    as
    in new window

    Handle: RePEc:eee:intfin:v:20:y:2010:i:1:p:36-50
    Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Hyuk Choe & Bong-Chan Kho & Rene M. Stulz, 1998. "Do Foreign Investors Destabilize Stock Markets? The Korean Experience in 1997," NBER Working Papers 6661, National Bureau of Economic Research, Inc.
    2. Mech, Timothy S., 1993. "Portfolio return autocorrelation," Journal of Financial Economics, Elsevier, vol. 34(3), pages 307-344, December.
    3. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 457-510.
    4. Bange, Mary M., 2000. "Do the Portfolios of Small Investors Reflect Positive Feedback Trading?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(02), pages 239-255, June.
    5. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
    6. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June.
    7. Eduardo R. Borensztein & R. Gaston Gelos, 2001. "A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds," CESifo Working Paper Series 564, CESifo Group Munich.
    8. Jianping Mei & Jose A. Scheinkman & Wei Xiong, 2009. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 225-255, November.
    9. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Scholarly Articles 27692662, Harvard University Department of Economics.
    10. Fong, Wai Mun, 2009. "Speculative trading and stock returns: A stochastic dominance analysis of the Chinese A-share market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(4), pages 712-727, October.
    11. John Fernald & John H. Rogers, 2002. "Puzzles In The Chinese Stock Market," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 416-432, August.
    12. Sentana, Enrique & Wadhwani, Sushil B, 1992. "Feedback Traders and Stock Return Autocorrelations: Evidence from a Century of Daily Data," Economic Journal, Royal Economic Society, vol. 102(411), pages 415-25, March.
    13. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, vol. 59(2), pages 151-193, February.
    14. Gregory Koutmos & Reza Saidi, 2001. "Positive feedback trading in emerging capital markets," Applied Financial Economics, Taylor & Francis Journals, vol. 11(3), pages 291-297.
    15. Martin Bohl & Pierre Siklos, 2008. "Empirical evidence on feedback trading in mature and emerging stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 18(17), pages 1379-1389.
    16. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August.
    17. Culter, D.M. & Poterba, J.M. & Summers, L.H., 1990. "Speculative Dynamics," Working papers 544, Massachusetts Institute of Technology (MIT), Department of Economics.
    18. Andrew W. Lo & A. Craig MacKinlay, 1989. "An Econometric Analysis of Nonsynchronous Trading," NBER Working Papers 2960, National Bureau of Economic Research, Inc.
    19. Yu-Fen Chen & Chih-Yung Wang & Fu-Lai Lin, 2008. "Do Qualified Foreign Institutional Investors Herd in Taiwan's Securities Market?," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(4), pages 62-74, July.
    20. Koutmos, Gregory, 1997. "Feedback trading and the autocorrelation pattern of stock returns: further empirical evidence," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 625-636, August.
    21. Chiang, Thomas C, 1988. "The Forward Rate as a Predictor of the Future Spot Rate--A Stochastic Coefficient Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 212-32, May.
    22. Toshiaki Watanabe, 2002. "Margin requirements, positive feedback trading, and stock return autocorrelations: the case of Japan," Applied Financial Economics, Taylor & Francis Journals, vol. 12(6), pages 395-403.
    23. Markus K. Brunnermeier & Stefan Nagel, 2004. "Hedge Funds and the Technology Bubble," Journal of Finance, American Finance Association, vol. 59(5), pages 2013-2040, October.
    24. Conrad, Jennifer & Kaul, Gautam, 1988. "Time-Variation in Expected Returns," The Journal of Business, University of Chicago Press, vol. 61(4), pages 409-25, October.
    25. LeBaron, Blake, 1992. "Some Relations between Volatility and Serial Correlations in Stock Market Returns," The Journal of Business, University of Chicago Press, vol. 65(2), pages 199-219, April.
    26. Antoniou, Antonios & Koutmos, Gregory & Pericli, Andreas, 2005. "Index futures and positive feedback trading: evidence from major stock exchanges," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 219-238, March.
    27. Kaminsky, Graciela & Lyons, Richard & Schmukler, Sergio, 2000. "Managers, investors, and crises : mutual fund strategies in emerging markets," Policy Research Working Paper Series 2399, The World Bank.
    28. Tan, Lin & Chiang, Thomas C. & Mason, Joseph R. & Nelling, Edward, 2008. "Herding behavior in Chinese stock markets: An examination of A and B shares," Pacific-Basin Finance Journal, Elsevier, vol. 16(1-2), pages 61-77, January.
    29. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:20:y:2010:i:1:p:36-50. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.