The Qfii A-share Market In China Holding Preferred Empirical Research

It has been more than four years since China introduced qualified foreign institutional investors (QFII) formally in the year of 2003. Today QFII has been the second largest institutional investors in A-share markets of China. With further development and constant completion of QFII system, their investment behaviors will make more powerful impact on China's stock market. Their stock preference will exert an important influence on selecting stocks of other institutional investors and individual investors too. So it is necessary for us to make deeper research on investment preference of QFII in China's stock market.In this paper, we characterize the ownership in listed companies in A-share markets by QFII from the end of the year 2003 to the first half year of 2007. The dataset includes the most likely concerned variables related to the fundamental and market performances as well as corporate governance of Chinese listed firms. Using logistic regression models and standardized regression models, the paper tries to find out the most important firm-level characteristics that influenced the investment of QFII, and analysis the stock preference of QFII in China's stock markets.We document that QFII show a preference for large firms, firms with low financial leverage and leading firms in industries. Also we find QFII hold more shares in firms with high price-to-book ratio and firms with high return and low turnover in the stock markets. Controlled for the fundamental and market performances, QFII overweight firms with higher proportion of tradable A-shares and firms with more concentrated ownership structures, measured by Herfindahl-Hirschman Index(HHI) of the top ten shareholders; QFII underweight firms in which the ownerships of the largest shareholder are very large. Besides, the empirical evidence suggests that the A+H listed companies are more attractive for QFII investment. Taking the special ownership structure of China's listed firms into account, we further analyze the relationship between the ownerships of QFII and types of the largest shareholder. The result reveals that QFII prefer firms under control of legal-person shares and underweight firms under control of state-owned shares. In conclusion, the stock preferences of QFII investment in A-share markets demonstrates that QFII attach great importance to the corporate governance of listed firms and they doesn't insist on value investment in China's A-share markets as they do in other stock markets.