RESEARCH ARTICLE
Smart money or chasing stars: Evidence from northbound trading in China
Cunfei Liao,
Guohao Tang,
Xiaoying Xu,
Cunfei Liao
School of Economics and Management, Nanjing University of Science and Technology, Nanjing, China
Search for more papers by this authorGuohao Tang
College of Finance and Statistics, Hunan University, Changsha, China
Search for more papers by this authorCorresponding Author
Xiaoying Xu
School of Finance, Central University of Finance and Economics, Beijing, China
Correspondence
Xiaoying Xu, School of Finance, Central University of Finance and Economics, Beijing 102206, China.
Email: [email protected]
Search for more papers by this authorCunfei Liao,
Guohao Tang,
Xiaoying Xu,
Cunfei Liao
School of Economics and Management, Nanjing University of Science and Technology, Nanjing, China
Search for more papers by this authorGuohao Tang
College of Finance and Statistics, Hunan University, Changsha, China
Search for more papers by this authorCorresponding Author
Xiaoying Xu
School of Finance, Central University of Finance and Economics, Beijing, China
Correspondence
Xiaoying Xu, School of Finance, Central University of Finance and Economics, Beijing 102206, China.
Email: [email protected]
Search for more papers by this authorFirst published: 30 December 2022
Abstract
To explore what kinds of roles foreign investors take in a gradually opening financial market, we propose the abnormal holding value ratio (AHVR) of northbound investors among stocks through China's Stock Connect Mechanism. We find that AHVR positively predicts the expected stock returns and significantly relates to firms' quality-related fundamental information, especially profitability. Foreign investors learn the firm fundamentals before they invest in the Chinese market, which is different from the trading behaviour of domestic individual investors. The AHVR premium is larger among firms with higher attention of analysts who focus on effective information and with lower attention of individual investors who have behavioural bias. In all, the northbound inflows are smart money, which will increase the efficiency of the Chinese market instead of simply chasing stars that only grab investors' attention.
CONFLICT OF INTEREST
The authors declare no potential conflict of interest.
Open Research
DATA AVAILABILITY STATEMENT
The data used in this study are available from CSMAR and WIND databases. Data are available from the authors with the permission of CSMAR and WIND databases.
Supporting Information
| Filename | Description |
|---|---|
| ijfe2751-sup-0001-Appendices.docxWord 2007 document , 19 KB | APPENDIX 1. Predictability of AHVR over different holding periods APPENDIX 2. Performance of single sorts on AHVR during the COVID-19 period |
Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.
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