Qf â…¡ Information Advantage In Emerging Markets

It has been eight years since qualified foreign institutional investors(QFⅡ) is introduced in China in the year of2003. Currently, QFⅡ has been the third largest institutional investors in A-share markets of China. And QFⅡ is palying more and more important role in China’s stock market.For a long time, information asymmetry between foreign investors and domestic investors is now beconing frontier in international finance field.Comparing with domestic investors, does QFⅡ has information advantage in China’s stock market? And what kind of investment portfolio characteristics and preference do QFⅡ and domestic investor have? This paper is going to answer these two questions with datas from China’s stock market.In this paper, we calculate the rate of return of overweight portfolio, invariable portfolio and underweight portfolio when institutional investors buy and hold stocks for one quarter and two quarters. Then we compare the differences of rate of return between QFⅡ and Sino-foreign joint venture fund. And we also accomplish the comparison with different subgroups of QFⅡ from various geographic areas and different subperiod. The result shows that QFⅡ doesn’t own information advantage in China’s stock market, compared with Sino-foreign joint venture fund. However, QFⅡ can require abnormal return in China’s stock market.Besides, QFⅡ and Sino-foreign joint venture fund also differs from investment portfolio characteristics and preference.For industry preference, manufacturing industry and financial industry both occupy important positions in their investment portfolio. In addition,QFⅡ prefer transport storage industry and public utilities industry, and Sino-foreign joint venture fund choose extractive industry and IT industry.For investment portfolio characteristic, we documenet that the percent of portfolio stocks held continuously for past two years of QFⅡ is lower than Sino-foreign joint venture fund,however, the ownership stake size of QFⅡ is larger than Sino-foreign joint venture fund. And QFⅡ buy more shares of firms with good profitability, low book-to-market ratio, low turnover and low β. Compare with QFⅡ, Sino-foreign joint venture fund prefer to choose firms with smaller size, higher book-to-market ratio. Much more, QFⅡ’s inverstment style doesn’t change a lot after the reform of non-tradable shares in2005.