The Empirical Test Of Insufficient Investment For Institutions In China

According to classical investment theory, the investors should diversify theirportfolios as possible as they can in order to get the maximum rate of return for everygiven level of risk or the minimum risk for every level of return. However, a largebody of evidence from overseas suggests that investors diversify their portfolioholdings much less than is recommended by normative models of portfolio choice.They incline to hold the stocks of the companies which locate in or not far from theirareas. This article takes fund corporations as a representative of institutional investorto make an investigation of the investment distribution in China. We believe thisphenomenon, known as "insufficient investment", exists in China financial markets aswell. At the end of this article we try to point out some important factors that maybring about "insufficient investment", and we show that both the equity scale of fundcorporations and the investment style of the managers (especial the latter one) are theright ingredients in work.