The Introduction Of Qfii On China's Stock Market Prices Yield Fluctuations

As a transitional arrangement to implement the gradual liberalization of capital market, QFII system has already been widely exercised in emerging market economies. The effect that QFII induce on the stability of security market can be of great significance in realizing a healthy development of the capital market.QFII system has been working in China for 5 years since 2002. The arrangement has a rigid rule on the selection of qualified investor and quantum granting. Also, the capital flow-out is also under a cautious management--Yet the limit of security investment is relatively loose. The effect that QFII has on the volatility of stock returns can be realized through many approaches. The creditability of QFII and immature condition of Chinese stock market lead to Herd Effect, which greatly enhance the volatility of stock returns. Also, QFII makes the market return more volatile through Industry Effect, Exterior Market Linkage Effect and Supervision Risk Effect. However, due to time lag, the positive effect that QFII has on the volatility of stock return is not remarkable till now. The result of metrological test also shows that the volatility of Chinese stock return increased slightly after QFII is introduced.To relieve the negative effect that QFII has on stock return fluctuation, the proportion of institutional investor should keep rising, the regular of stock market should be more comprehensive, information should be more open to the public and the weight of long-investment cycle institution should be higher. Moreover, the government should stimulate innovation and facilitate the progress of financial derivative products.