The identity of capital: Why does the market assign asymmetric price weights to foreign investors?

This paper examines how cross-border investor identity relates to price formation in China’s A-share market. Using quarterly ownership data from 2016 to 2025, we document that changes in northbound (foreign) holdings are associated with larger price adjustments than comparable changes in domestic institutional ownership. To assess whether this differential association reflects genuine foreign participation rather than pseudo-foreign capital or disclosure-induced attention effects, we exploit two regulatory changes: the 2018 tightening of investor identification rules and the 2024 suspension of daily disclosure of northbound holdings. The relative return–ownership association remains present across these institutional regimes. We further show that the strength of this association varies systematically across firm characteristics and market conditions, particularly in settings with greater informational complexity or elevated trading noise. Overall, the findings highlight heterogeneous pricing weights across investor types and contribute to understanding how international capital flows interact with price discovery in emerging markets.