The Impact Of Foreign Institutional Investors On China's Stock Market Pricing Efficiency

Along with the continuous deepening of the market economy,financial opening to the outside world is the basic performance of the market economy across borders.In the international balance of payments capital financial account,it is divided into the opening of capital projects and the opening of financial projects.The capital account opening field represents FDI.And OFDI behavior,the opening of capital projects in the past three decades,and the physical industries such as China's manufacturing and service industries have been greatly improved in the areas of production technology and production efficiency,and there have been major developments in the physical industry.However,the opening of financial projects was relatively late.After joining the World Trade Organization,the opening of financial projects included the opening of services and the opening up of funds.In the field of opening of financial capital projects,qualified foreign institutional investors were implemented in China(QFII)and Qualified Domestic Institutional Investors(QDII)system,then can the opening up of funds in the financial sector be like the opening of capital projects,which will have an external role in promoting the development of China's capital market?This issue is the starting point of this chapter's research.Considering the existence of QFII and QDII bidirectional open behavior in the opening of financial projects,this paper uses the unilateral QFII investment as the object to study its impact on the efficiency of the Chinese stock market,its mechanism,and its path.Spillover Effect.The capital market has played a major role in serving the real estate industry,promoting the reform of state-owned enterprises in China,and realizing the optimal allocation of social resources.The establishment of an efficient capital market is an urgent task for the Chinese government and the Chinese people,especially in China.Under the background of industrial upgrading and transformation,the economy needs capital markets to optimize the allocation of resources and resolve systemic financial risks.In the process of capital market construction,asset pricing is its core content.Asset price is the vane that guides the optimal allocation of social resources.Efficient and accurate asset pricing is the basis for the development of the capital market and the prerequisite for investment function and financing function.The constraints faced by the efficiency building of the capital market are: frictionlessness of the market,investor rationality,transparency of information,integrity finance of investment and financing entities,and sound legal regulations.Among them,the optimization of market players represented by investors' rationality is an important part of them.The investment literature also has many studies in this field.From Markowitz's asset portfolio to the capital asset pricing of big investors and Eugene Fama's effective market theory,the rational investment on the demand side has been considered to varying degrees.In the study of rational investors,institutional investors are typical representatives.The research in this paper is based on the perspective of financial liberalization and studies from the perspective of foreign institutional investors.There is a need to consider the efficiency of capital markets from the perspective of demand.The significance of the article is as follows:1.QFII: Rational information trader.Efficient asset pricing requires a large number of investment portfolios from the demand side.All investment portfolios are the optimal investment portfolio.Only under such conditions will the market be able to form a competitive equilibrium.The optimal investment portfolio construction and arbitrage behavior to achieve the optimal investment portfolio require investors to be rational and have high financial literacy.Foreign institutional investors grow in a mature capital market and have the professional requirements of rational investors.Literacy,professional skills and investment experience.However,given the shortcomings of the Chinese capital market system,will foreign institutional investors play their role in the mature capital market after entering the Chinese capital market? Through research,we have found that foreign institutional investors in China cannot be measured by simple value investment or speculation.From the counterfactual results of investment income,QFII is a learning type of information trader in China,and it is suitable for Chinese capital market arbitrage.Smart investors,the basic mechanism of such research results is the arbitrage behavior of foreign institutional investors,the emergence of arbitrage behavior,passively requiring the Chinese government to actively construct the system,in order to make up for loopholes and achieve a fair and open capital market.,fair and efficient construction.2.The mechanism and path of foreign institutional investors' influence on the pricing efficiency of the stock market.Foreign institutional investors enter the Chinese capital market and have an impact on the Chinese stock market.There are two main mechanisms and paths: First,foreign institutional investors entering China have brought capital for the development of China's capital market,providing sufficient funds for the market.fluidity.While providing liquidity,a large amount of information,especially private information,is transmitted to the market through market transactions,because an efficient stock market has a high demand for asset price information content and requires asset prices to contain a large amount of information,especially stocks.Idiosyncratic private information.Second,foreign institutional investors promote market participants' optimization through market mechanisms(competition mechanisms,demonstration effects,personnel mobility,and parallel and vertical relationships in the industry chain).The article builds stock market pricing efficiency indicators: stock price synchronization and stock prices.Hysteresis indicators measure the efficiency of the stock market pricing.Using empirical data from China's capital markets from2005 to 2017,empirical studies have found that the introduction of foreign institutional investors(QFII)can indeed reduce stock price synchronicity and reduce price retrenchment levels.Further groupings conducted a series of robustness tests and also verified the findings.However,the group regression also found that in the bear market,small and medium-sized companies represented by SMEs,QFII pricing efficiency in the stock market is better than in the bull market,the main board market represented by state-owned enterprises.While using the hybrid cross-sectional regression,a regression test was conducted by studying QFII and corporate governance indicators and financial profitability indicators of listed companies.The results show that the QFII investment in the higher price-earnings ratio stock samples,the higher the pricing efficiency of the stock market,and QFII The stocks that invest in listed companies have higher equity concentration,and the stock pricing efficiency is lower.In the crossover regression of QFII investment and government system construction,the empirical evidence shows that the higher the proportion of investment in QFII,the higher the pricing efficiency of stock samples in margin financing and short selling.In the cross-project between QFII and domestic institutional investors,the empirical results show that the results are unstable,that is to say,it is currently under the combined effect of QFII and domestic institutional investors,it is still uncertain whether it can achieve pricing efficiency.3.The non-linear relationship between the QFII investment behavior and the pricing efficiency of China's stock market.The article further analyzed the investment behavior of QFII and found that the relationship between foreign institutional investors' pricing efficiency in the stock market is not monotonously increasing,but that after the investment ratio reaches a certain level,its pricing efficiency will decrease,and the relationship between the two is not monotonous..The study found that the internal mechanism is:(1)anxiety behavior of foreign institutional investors.In order to maximize profits,foreign institutional investors are currently global asset allocations.In the initial period,the proportion of asset allocation in China accounts for a relatively low proportion of their total assets,so their interest in China's asset allocation is low,with low anxiety.China's asset allocation is only a basic position allocation of its global assets.However,as the proportion of investment in China continues to increase,QFIIs begin to pay attention and anxiety.If there are some changes in the market,they will actively adjust their positions,leading to large fluctuations in the market and irrational market behavior.(2)Concerns arising from the government's mandatory control and system construction in China's capital market.The government intervention in China's capital market is an important feature.The government's intervention in the market often disrupts the normal market order and adds to the shortcomings of the Chinese capital market itself.When some unanticipated policies were issued and when the black swan event broke out,the QFII investment quota exceeded a certain percentage,which will cause major corrections to previous expectations and lead to a revaluation of the market value.Therefore,the market price will fluctuate greatly and the market pricing efficiency will decline.(3)Free rider behavior based on the adverse selection of information economics.At the initial stage of opening up the capital market,the Chinese government adopted relatively strict capital control measures.The selected QFIIs are foreign investment institutions with relatively long operating history,good performance,and high degree of integrity,but with further expansion and depth of opening,Some foreign investment institutions with poor qualifications have started to go ashore,so that the market is mixed.Sub-optimal foreign investors may bring in some bad investment habits and styles,and they will learn and imitate domestic institutional investors.The efficiency of market pricing will decline.In addition,after more foreign investors enter,domestic investors will pay more attention to active information mining and value judgment.The result of the final game will be the production of market information.The value-mining investor has decreased and the market pricing efficiency has begun to decline.The article empirically verifies the non-linearity of the pricing efficiency of foreign institutional investors to the stock market through QFII position data from 2013 to 2017.4.In addition to the information mechanism and spillover effects,the QFII's mechanism influencing the Chinese stock market affects the pricing efficiency through a reputation mechanism.This reputation mechanism is mainly reflected in the two effects exhibited by the QFII investors' stocks: momentum mechanism and The reversal mechanism,in an empirical study,found that foreign institutional investors in China are more or less motivated by momentum mechanisms.Based on the research in this paper,the results have been drawn that the introduction of foreign institutional investors can achieve domestic capital market pricing efficiency through capital inflow,technical input,and reputation impact,but this effect is nonlinear.By studying the relationship between foreign institutional investors and domestic investors,there is a short-term momentum effect on the impact of foreign institutional investors on domestic investors.Therefore,the article suggests that the introduction of foreign institutional investors to achieve the efficiency of the domestic stock market pricing,but the proportion of foreign institutional investors to control the investment under a certain threshold,so as to effectively prevent systemic financial risks.