Do Domestic and Foreign Institutional Investors Have Similar Portfolio Preferences?

Using the portfolio data of Qualified Foreign Institutional Investors (QFIIs) and Domestic Mutual Funds, we first compare their portfolio decision. The empirical results show that, despite the commonalities, the foreign and domestic institutional investors differ in portfolio selection in some aspects. We then examine the compensation ratio offered by non-tradable shareholders to tradable shareholders in the share structure reform. It is found that the state-owned companies with ownership of QFIIs but not domestic mutual funds, the average compensation ratio is the highest, while the state-owned companies with ownership of domestic mutual funds but without QFII ownership, the compensation ratio is significantly lower. Overall, our results imply that foreign institutional investors tend to have more bargaining power than their local peers.