Do Qualified Foreign Institutional Investors Improve Information Efficiency: A Test of Stock Price Synchronicity in China?

Abstract

Stock price synchronicity at a country level has been the subject of many previous studies, but for most investors it is more relevant at a firm level. Working from the perspective of a foreign investor stock price synchronicity is analyzed at the firm-level in the hot Chinese stock market. The impact of foreign ownership, institutional ownership, the concentration of large shareholders, and audit quality are all considered as factors which impact on firm-specific information and thus moderate stock price. Using data of Chinese-listed firms in the Chinese A-shares capital market from 2004-2014 stock price synchronicity is measured. Empirical results suggest stocks invested by Qualified Foreign Institutional Investor (QFII) investors and institutional investors stocks have a significantly lower price synchronicity than stocks without institutional investment. This was found to increase as share concentration increased, until a relatively high concentration percentage was reached when synchronicity starts to fall again. Government ownership was shown to be a factor with high synchronicity but results for the use of a Big 4 Auditor was weaker.