Federal ID: 91-6001537
ISSN: 0022-1090 (Print) | 1756-6916 (Online)
Foreign Capital in the Chinese Stock Market: A Firm-Level Study
Christian T. Lundblad, Donghui Shi, Xiaoyan Zhang, and Zijian Zhang
♦ Using a proprietary dataset covering all foreign investors’ daily trades in the Chinese stock market from 2016 to 2019, we find that foreign order flows, facilitated by regulatory liberalization through several channels, present strong predictive power for future stock returns, implying that these order flows are likely informed. We track the source of this informativeness and find that foreign order flows significantly predict firm-level news and news-day returns, which suggests that foreign investors can process local firm information. Finally, regulatory reforms that generally relax investment access requirements further improve foreign investors’ predictive power.
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