The Moderating Role of Foreign Institutional Investors on Stock Market Volatility: Evidence from China

Foreign shareholding can result in stock market volatility, especially in immature financial markets. With quarterly data from 1,348 listed companies held by Qualified Foreign Institutional Investors (QFIIs) from 2006 (Q1) to 2020 (Q4), we investigate the dynamic time-varying impact of QFII ownershi...

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Bibliographic Details
Published in:Emerging markets finance & trade 2023-05, Vol.59 (6), p.1734-1747
Main Authors: Zhang, Jinhua, Zheng, Yiting, Ye, Yafen, Xu, Yimin
Format: Article
Language:English
Subjects:
dynamic impact
market volatility
online support vector quantile regression (online SVQR)
Qualified foreign institutional investors (QFIIs)
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Summary:Foreign shareholding can result in stock market volatility, especially in immature financial markets. With quarterly data from 1,348 listed companies held by Qualified Foreign Institutional Investors (QFIIs) from 2006 (Q1) to 2020 (Q4), we investigate the dynamic time-varying impact of QFII ownership on China A-share market volatility using an online support vector quantile regression. Our results indicate that QFIIs have an unsystematically destabilizing effect. This effect is asymmetric under different market conditions. QFIIs demonstrate more procyclicality during normal times, and less procyclicality during times of financial stress. The results of network density analysis confirm that volatility risk will stabilize as risk spill-over will decrease when QFIIs gradually expand their shareholdings and strengthen their interconnections in the China A-share market.
ISSN:1540-496X
1558-0938
DOI:10.1080/1540496X.2022.2152279