Empirical Research On The Effects Of Institutional Investors Sentiment And Investment Behavior On The Stock Price Synchronicity

Stock price synchronicity means that stock price move in the same direction together in a certain time period, and refers to the relationship of fluctuation between a single company and average market stock price. In particular, stock price synchronicity, as an important indicator of capital markets, has become important research areas of capital market efficiency and financial market stability, and also an important topic in academic and practice circle.In China’s security market, the phenomenon of stock price synchronicity is very significant. In existing findings, the degree of stock price synchronicity in China is in the first place in the world of 40 countries. At the same time, China’s stock market since its inception, has so far experienced seven rounds of spike with the rise and fall of alternating hobble. Thus, in 2001 the China securities regulatory authorities proposed the "super conventional development of institutional investors" in order to stabilize the market. However, the stock price synchronicity of stock market in China shows no sign of abating. Why, then, the stock price synchronicity in China’s market would be so high? What’s kind of impact the institutional investors make to the phenomenon? Existing theoretical and empirical research on this lacks of a comprehensive and in-depth analysis. on the basis of the stock price synchronicity theory by category/habitat from the view of behavioral finance, this paper investigates institutional investors sentiment and investment behavior which is prone to convergence (category investment behavior, preference investment behavior, herding behavior and positive feedback trading behavior) on the effects of stock price synchronicity in China’s stock market unique. On the whole, the main research work and innovation are in the following four areas:Firstly, with the principal components analysis method, this paper selects stock index futures net position (NP), the net capital inflow and outflow number (NN) and the trading volume (TV) of Shanghai and Shenzhen 300 index as three primary indicators of institutional investor sentiment to create a composite institutional investor sentiment index (CIISI), then examines the effects of the CIISI on stock price synchronicity and the influence of institutional holdings on the relationship between CIISI and stock price synchronicity. The conclusions are as follows:(1) there exists a positive correlation between stock price synchronicity and institutional investor sentiment; (2) with the ratio of institutional holdings rising, this positive correlation between stock price synchronicity and institutional investor sentiment decreases; (3) Further analyses show that there is a reverse-U pattern relation between CIISI and stock price synchronicity.Secondly, according to industry classification standard published by China Securities Regulatory Commission (CSRC), by constructing the stock price synchronicity model (reflecting the investment behavior of category), the convergence of the transaction model and the effect of investment behavior of category on stock price synchronicity model, this paper investigates three cases such as non-convergence, convergence and mixed trading behavior with the use of China’s securities market panel data. From the perspective of institutional investors, has verified the stock price synchronicity hypothesis by category from the view of behavioral finance. The results show that:(1) there exists a negative correlation between stock price synchronicity and non-convergence transactions of institutional investors, and this negative correlation enhances with the increase in the ratio of institutional holdings; (2) there exists a positive correlation between stock price synchronicity and convergence transactions of institutional investors, and this positive correlation weakens with the increase in the ratio of institutional holdings; Further analyses show that there is a reverse-U pattern relation between convergence transactions of institutional investors and stock price synchronicity; (3) convergence trading behavior is the decisive factor affecting stock price synchronicity, non-convergence trading on stock price synchronicity occurs through the convergence of transactions.Thirdly, in order to study the effect of the preference investment behavior of institutional investors on stock price synchronicity, studies are conducted respectively from the stock holding preference and gaming preference of institutional investors. In the first place, by constructing stock holding model of institutional investors, this paper divides stock holding of institutional investors into three groups to carry on empirical research in order to investigate the stock holding preference of institutional investors whether there exists significant effect on the stock price synchronicity. In the second place, by constructing the stock price synchronicity model (reflecting the investment behavior of preference) and the convergence of the preference model, this paper uses a large database of A-shares capital market of 2010-2012 to investigate whether institutional investors have lottery preference and their lottery preference generates stock price synchronicity based on the index of the low price, high idiosyncratic volatility and high idiosyncratic skewness. The conclusions are as follows:(1) The stock holding preference of institutional investors leads to stock price synchronicity; (2) Institutional investors have significant lottery preference for stocks which have lottery features; (3) Lottery preference of Institutional investors induces stock price synchronicity.Fourthly, for studying the relationship between non-independent strategies of institutional investors with stock price synchronicity, the paper mainly includes three aspects as follows. First taking the change of institutional holdings as a pointcut, gives the definition of the Cross-Sectional Standard Deviation of the change of institutional holdings (xholdCSAD), and based on CAPM proves that there exists nonlinear relationship between xholdCSAD and the total changes of institutional holdings in the presence of herding behavior significantly, so the paper establishes a nonlinear model to detect herding by institutional investors as to overcome the limitation of traditional CCK model that can not be used to investigate herding behavior by institutional investors before. Then from a new angle of capital driven, by constructing fund--return driven model and return--fund induced model which make up positive feedback trading behavior model, the paper investigates funds in China as a whole whether they have adopted positive feedback trading strategy after the listing of the stock index futures. At last based on the empirical results above, analyzes the relationship between non-independent strategies and stock price synchronicity of institutional investors. The conclusions are as follows:(1) During the sample period after the listing of stock index futures, institutional investors do not exist herding behavior; (2) During the sample period after the listing of stock index futures, on average, funds take a positive feedback trading strategy as a whole; (3) non-independent strategies of institutional investors (herding behavior, positive feedback trading behavior) increase the degree of stock price synchronicity.On the basis of the stock price synchronicity theory from the view of behavioral finance, this paper verifies the stock price synchronicity hypothesis by category/habitat, improves and enriches the theory of the "irrational behavior". And it can also help the government departments develop targeted policy measures to promote healthy and harmonious development of the market and institutional investors. At last, it can also help investors to grasp the pulse of the market and make right investment decision. So, this paper has important theoretical value and practical significance.