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

Michael Schuppli and Martin T. Bohl

No 909, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: 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.

Keywords: Foreign Institutional Investors; Feedback Trading; Chinese Stock Markets; Regulation; Ownership Restrictions (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-10
New Economics Papers: this item is included in nep-reg and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:0909

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