The impact of foreign institutional investors on the information content of Chinese stock prices

Abstract

This paper examines the impact of foreign institutional investors on the information content of stock prices in China's capital market. Using A-share listed companies in Shanghai and Shenzhen from 2005 to 2021 as the research sample, the study finds that institutional investors play a “leading role” in increasing the information content of the market in both the short and long term. Furthermore, the information content of domestic and foreign institutional investors is complementary, with foreign institutional investors more effective in promoting the increase of information content in the Chinese stock market than their domestic counterparts. These findings provide new empirical evidence on how to enhance the effectiveness of China's stock market by further opening to foreign institutional investors and increasing the price information content.