Research On The Impact Of Institutional Investors’ Behavior On The Stock Market

Rapid development of Chinese stock market since its establishment has made a huge contribution to economic growth, but compared with the European and American developed country,there is a great fluctuation with frequent outbreak of liquidity risk. At the same time,China’s institutional investors has grown up gradually to be the main force of investor in the stock market. They may increase the breadth and depth of the stock market,and may cause adverse impact on the stock market. What effect the behavior of institutional investors( including ownership, increasing or decreasing holdings and fictitious transaction)have on the stock market is worth studying. It is beneficial for institutional investors adjusting their behavior patterns,for countries more effectively strengthening supervision to gain positive interaction and mutual development with the stock market.Firstly,this paper systematically reviews the relative literature of China and foreign countries,extracting the core ideas and research methods;then compares and analyzes from the angle of positive and negative,domestic and abroad. Relatively speaking,Chinese literature can better pinpoint the institutional investors and the stock market in Shanghai and Shenzhen,but with shorter time span and less innovative empirical method. Then,this paper briefly introduces the traditional and modern economic theory(including the stock supply and demand theory,principal-agent theory,behavioral finance theory,the stock market vulnerability theory and the theory of liquidity risk),and applies these to explain how institutional investors’ behavior affect the stock market of our country.To make the study in accordance with the actual situation in our country,this paper summarizes respectively the development of institutional investors and the stock market in China in chronological order,and concludes that the institutional investors are greatly influenced by the policy and the stock market,transforming from denotative development to connotative development with competition and cooperation coexisting among institutions. And then on the basis of analyzing the current problems,this paper develops some specific strategies for optimization of institutional investors and the stock market. Next,it studies the way that the institutional investors affect the stock market,including some direct ways such as stock holdings,increasing or decreasing warehouse;or some indirect ways such as influencing the governance of listed company or stock index futures trading.By doing so,the paper carried out an empirical study on the impact of institutional investors’ behavior on the stock market. Firstly,research the overall influence of institution investors on the stock market,selecting 4328 samples of Shanghai A-share at the end of 2009-2013 to establish a multiple linear regression model. On the one hand,study the direct impact of institutions holdings on the volatility and liquidity of the stock market and observe the difference in the different markets;on the other hand,work on the influence of institution equity on the performance and governance structure of the listed companies,which indirectly affect the stock price changes. Next,the paper studies the differential impact of institutional investors on the stock market,firstly comparatively analyzing the holding of securities investment funds,securities firms,QFII,insurance companies,pension funds,trust companies on the quality of the stock market;secondly using event study,selecting 508 samples in the Shanghai and Shenzhen stock market at the end of 2014 to research the differential impact among different institutional investors,when they sharply increase or decrease their warehouse;thirdly using structural vector auto regression model(SVAR)to study the differential impact of institutional investors’ changing funds on the stock market. According to the selected 2004-2015 quarterly data,on the basis of empirical test of stability of time series variables,cointegration,granger causality and the model stability etc.,the SVAR model was successfully constructed. The impulse response analysis and variance decomposition are studied,so as to compare the differential impact of securities investment funds,securities,insurance funds on the stock market volatility.Finally,the paper draws the main conclusions: institutional investors’ stock holdings significantly reduce the volatility of the stock market,but the liquidity has a negative impact,more obvious in a bull market. Different institutional ownership,a sharp increase or decrease in warehouse differs the impact on stock prices;the social security fund,QFII and securities investment fund have more positive influence on the stock market and so on. Therefore,our country should not only continue to expand the institutional investor team,but need to optimize structure with more emphasis on the development of long-term institutional investors,implement classification regulation and contingency management strategy;Institutions themselves should focus on the internal management,investment rationalization and business innovation,the issued products shall be gradually fully funded,achieving differentiation and large scale operation.