The Impact of Qualified Foreign Institutional Investors on Taiwan’s Stock Market

This study explores the relationship between qualified foreign institutional investors (QFIIs) and Taiwan’s stock market and evaluates the effect of QFIIs’ investment transactions on Taiwan’s stock market. By taking the date of easing regulatory restrictions on foreigners’ stock investment holdings as a cutoff point, the research uses the highest and lowest 10 stocks of QFII holdings in three industry sectors as sample portfolios to study the priorand post-event returns. A statistically significant difference in returns represents the impact of the QFII regulation on Taiwan’s stock market. The empirical evidence in this paper yields two results. First, the investment performance of QFIIs’ high holdings stocks is significantly better than that of QFIIs’ low holdings stocks, indicating an interesting and cheap investment strategy to individual investors. Second, the investment performance of QFIIs’ trading behavior during the postliberalization period is higher than that during the pre-liberalization period. The evidence shows that QFIIs’ trading behavior has generated better returns and portfolio performance since the stock market’s full liberalization.