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Stock market liberalization, foreign institutional investors, and informational efficiency of stock prices: Evidence from an emerging market

Stock market liberalization, foreign institutional investors, and informational efficiency of stock prices: Evidence from an emerging market
Stock market liberalization, foreign institutional investors, and informational efficiency of stock prices: Evidence from an emerging market
This study investigates the effects of investments by qualified foreign institutional investors (QFIIs) on the informational efficiency of stock prices in Chinese A‐share stock markets. Employing a large sample of listed firms from 2004 to 2012, we document a significant and positive relationship between stock price informativeness and stock ownership by foreign institutional investors. We also use the instrument‐variable approach, propensity‐score matching method, as well as an alternative measure of informational efficiency to ensure the robustness of our findings. We document that the effects of foreign ownership on informational efficiency is stronger for firms with lower levels of assets intangibility and in regions with less developed institutions. In addition, we document that the effects of foreign ownership on informational efficiency is more pronounced when QFIIs have better local information and more incentives to monitor.
China, foreign institutional investors, market liberalization, stock price efficiency
1076-9307
Li, Yijie
52c50154-3873-436e-8162-9a2d3c1fa8f4
Liu, Jianghui
d276010e-4e9a-4655-9687-0310c7237a6f
Wang, Haizhi
0e47d8a2-daa1-4f89-9d37-3c988aefdfc7
Wang, Peng
9496fb0a-1c17-4b6b-a755-aedf19bb83e5
Li, Yijie
52c50154-3873-436e-8162-9a2d3c1fa8f4
Liu, Jianghui
d276010e-4e9a-4655-9687-0310c7237a6f
Wang, Haizhi
0e47d8a2-daa1-4f89-9d37-3c988aefdfc7
Wang, Peng
9496fb0a-1c17-4b6b-a755-aedf19bb83e5

Li, Yijie, Liu, Jianghui, Wang, Haizhi and Wang, Peng (2020) Stock market liberalization, foreign institutional investors, and informational efficiency of stock prices: Evidence from an emerging market. International Journal of Finance & Economics. (doi:10.1002/ijfe.2074).

Record type: Article

Abstract

This study investigates the effects of investments by qualified foreign institutional investors (QFIIs) on the informational efficiency of stock prices in Chinese A‐share stock markets. Employing a large sample of listed firms from 2004 to 2012, we document a significant and positive relationship between stock price informativeness and stock ownership by foreign institutional investors. We also use the instrument‐variable approach, propensity‐score matching method, as well as an alternative measure of informational efficiency to ensure the robustness of our findings. We document that the effects of foreign ownership on informational efficiency is stronger for firms with lower levels of assets intangibility and in regions with less developed institutions. In addition, we document that the effects of foreign ownership on informational efficiency is more pronounced when QFIIs have better local information and more incentives to monitor.

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More information

Accepted/In Press date: 18 June 2020
e-pub ahead of print date: 13 July 2020
Keywords: China, foreign institutional investors, market liberalization, stock price efficiency

Identifiers

Local EPrints ID: 442342
URI: http://eprints.soton.ac.uk/id/eprint/442342
ISSN: 1076-9307
PURE UUID: 626f1aad-3fad-4263-89fe-c0e65f55cb5f
ORCID for Peng Wang: ORCID iD orcid.org/0000-0002-0081-5598

Catalogue record

Date deposited: 14 Jul 2020 16:30
Last modified: 26 Nov 2021 03:04

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Contributors

Author: Yijie Li
Author: Jianghui Liu
Author: Haizhi Wang
Author: Peng Wang ORCID iD

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