Foreign Institutional Investors and Stock Market Liquidity in China: State Ownership, Trading Activity and Information Asymmetry

Mingfa Ding (), Birger Nilsson () and Sandy Suardi
Additional contact information
Mingfa Ding: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden, http://www.nek.lu.se/en/contact
Birger Nilsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden, http://www.nek.lu.se/en/contact

No 2013:10, Working Papers from Lund University, Department of Economics

Abstract: The Chinese government implemented the Qualified Foreign Institutional Investor (QFII) system in order to advance the quality of local capital markets by participation of foreign institutional investors. This paper identifies the channels through which foreign institutional investors influence the liquidity on the Chinese stock markets. Firstly, we find that market participation by foreign institutional investors promotes liquidity both for state-owned enterprises (SOEs) and non-SOEs. Secondly, foreign institutions influence liquidity through the informational frictions channel, but not through the real frictions channel. Thirdly, foreign institutions are not informationally disadvantaged when investing in SOEs. Finally, the link between foreign institutional participation and liquidity remains strong before, during, and after the recent financial crisis.

Keywords: liquidity; emerging markets; foreign institutional investors; real frictions; informational frictions (search for similar items in EconPapers)
JEL-codes: C23 G12 G18 G32 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2013-04-23, Revised 2013-06-11
New Economics Papers: this item is included in nep-cna and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Foreign Institutional Investors and Stock Market Liquidity in China: State Ownership, Trading Activity and Information Asymmetry (2013)
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