The Qualified Foreign Institutional Investor (qfii) Scheme & Its Impact on China Stock Volatility
The Qualified Foreign Institutional Investor (QFII) Scheme&Its Impact on China Stock VolatilityGroup 11He Yingcheng, Kong Lingshu and Wang JixinFaculty of Business and Economics The University of Hong KongMay 5, 2017AbstractThe main purpose of this paper is to explore the impact of Qualified Foreign Institutional Investor (QFII) Scheme on the volatility of stocks in the Chinese market. We first analyze QFII Scheme and the characteristics of various investors to demonstrate our motivation and reflection on the research question, and our hypothesis is that QFII Scheme reduces the volatility of stocks in the Chinese market. Then we introduce our two multi-linear regression models to evaluate the impact on both qualitative and quantitative stages. These models apply the logarithmic transformation to fit nonlinear relationship, and incorporate control variables on firm-specific attributes, macro-economic environment and industry fundamentals to eliminate disturbances. The two regression results, however, both imply a significant positive relation between QFII investment and stock volatility. We thus discuss the possible reasons behind and provide implications of this unexpected result on four key stakeholders. Finally, we suggest several limitations on our research and inspiration for further research.
Keywords: QFII Scheme, stock volatility, positive correlationCatalog1. Introduction 31.1 QFII Scheme 31.1.1 Basic Profile of the Policy 31.1.2 Current Development of the Policy 41.2 Research Question and Hypothesis 51.3 Underlying Motivation 51.3.1 The China Stock Market 51.3.2 Institutional Investors 61.3.3 Qualified Foreign Institutional Investors (QFIIs) 71.4 Literature Review 82. Methodology 82.1 Framework Overview 82.2 Model and Variables 92.2.1 Regression Models 102.2.2 Dependent variable 112.2.3 Explanatory variables 112.2.4 Control variables 112.3 Data Collection and Processing 143. Results and Interpretation 153.1 Regression Results: Models and Explanatory Variables 153.2 Control Variables 173.3 Possible Reasons Behind Our Results 184. Implications 194.1 Regulatory Authority 194.2 QFIIs 204.3 Retail Investors 20