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

Michael Schuppli and Martin T. Bohl

Journal of International Financial Markets, Institutions and Money, 2010, vol. 20, issue 1, 36-50

Abstract: 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.

Keywords: Foreign; institutional; investors; Feedback; trading; Chinese; stock; markets; Regulation; Ownership; restrictions (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:20:y:2010:i:1:p:36-50

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