Are Foreign Institutions More or Less Informed? Evidence from China's Stock Markets

Abstract

We compare the trading activities of foreign institutions in China's B-share market to those of domestic institutions in the A-share market before the same private information was released to both markets. Our findings show that both types of institutions were informed about which firms would implement the share structure reform in the next batch of reform. Foreign institutions bought even more shares than domestic ones in the days closely preceding reform announcements. Furthermore, both of them traded aggressively with large trades to profit from their private information. We can calculate the impact of large buy trades initiated by foreign and domestic institutional investors in each day. The impact increased in days before the Share Structure Reform for both foreign and domestic institutional investors. In addition, we find that the impact of large buy trades initiated by foreign institutions on price changes increased in days before the Share Structure Reform more than those initiated by domestic ones in the same days.