An Empirical Study On The Prudence Of QFII In A-share Market

QFII system is the transition period policy during the Chinese capital market opensgradually for global investors, It has been nearly ten years since China introduced the systemformally in the end of the year2002. With further development and constant completion of QFIIsystem，QFII will make more powerful impact on the Chinese capital market. Most of QFII areseasoned on the investment of global capital market due to their long investment history andglorious records and they manage a large number of assets for their clients with a mature andstable investment philosophy and strict risk control measure. The empirical research on thepreference of QFII’s stock holding will help related supervision departments to manage the stockmarket, and help individual investors and other institutional investors to learn stable investmentphilosophy and advantage management technology. So it’s a practical guidance to promotefurther open and development of capital market in china.In this paper, we characterize the ownership in listed companies in A-share markets by QFIIfrom the first half year of the year2007to the first half year of2011.The dataset includes themost likely concerned variables related to the fundamental and market performances as well ascorporate governance of Chinese listed firms.Using Cross-sectional data regression models andQuintiles Method, the paper tires to find out the most important characteristics that influencedthe investment of QFII, and then analysis the stock preference of QFII in the Chinese stockmarkets. And by this judging whether QFII’s holding preference meet the "prudent man"hypothesis or not.The empirical evidence suggests that QFII show a preference for small firms, firms withlow turnover and low proportion of tradable A-shares, so the preference of QFII Violated the"prudent person" principle，and didn’t match foreign relative study findings. While at the sametime, we also found the QFII favor the stock that early performance is good, stock price volatilityis low and the stocks with high dividends, these preferences follow the "prudent person"principle. Finally, we conclude that the ownership preferences of QFII A-share market, overall isnon-prudent. They do not fully adhere to consistent prudent investment philosophy in Chinesestock market as they do in the developed capital market.