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Do Foreign Institutional Investors Destabilize China’s A-Share Markets?

  • Michael Schuppli
  • Martin T. Bohl
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    This paper investigates the e ect of foreign institutional investors on the sta- bility 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 in- stitutions have a stabilizing e ect on Chinese stock markets and contribute to market eciency. This nding is robust across exchanges, sample periods, size quintiles and alternative model speci cations. By contrast, domestic investors appear to engage in positive feedback trading. Our results have important implications for market regulation.

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    File URL: http://www1.wiwi.uni-muenster.de/cqe/forschung/publikationen/cqe-working-papers/CQE_WP_9_2009.pdf
    File Function: Version of October, 2009
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    Paper provided by Center for Quantitative Economics (CQE), University of Muenster in its series CQE Working Papers with number 0909.

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    Length: 30 pages
    Date of creation: Oct 2009
    Date of revision:
    Handle: RePEc:cqe:wpaper:0909
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