Abstract
In the recent years, foreign institutional investors have significant impact on Chinese market. We adopt 2017 MSCI index inclusion in the Chinese market to test the exogenous shock of foreign institutional investors on the efficiency of stock price. The results show that the foreign institutional investors increase the price efficiency. The effect is more significant in state-owned enterprises, the enterprises with higher degree of judicial civilization and analyst attention. The results remain robust after multiple MSCI sequent expansions. Foreign institutional investors are the main drive for firm-specific price efficiency. Our paper provides evidence for the positive role of foreign institutional investor in Chinese market.
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