Study On Risk Of Chinese Stock Market Based On Institutional Investor Overconfidence

In Chinese stock market, a typical immature and emerging market, there is still abig gap on building background, operation way, development history and so on, compared with mature foreign stock market, so'financial abnormal phenomenon'are more prominent and significant, mainly as boom-bust and high turnover phenomenons which deviate from Chinese economic development. As one of the main important investors in the stock market, psychological preferences and investment behavior of institutional investors will inevitably have a profound impact on Chinese stock market. A large number of psychology literatures suggest that, people often show a strong overconfidence psychological tendency towards economic activities. Therefore, this article intends to study the impact institutional investor overconfidence psychological preferences on the risk of Chinese stock market from both theoretical and empirical aspects, which has very important theoretical and practical significance to strengthen risk management and control in Chinese stock market and to protect the health, stable and sustainable development of Chinese stock market.Based on the previous related research findings, first of all, this article makes systematic analysis and conclusion on the behavior features of institutional investors in Chinese stock market. Then under the hypotheses that institutional investors have overconfidence psychological preferences, we build a mathematical model and explore the affect mechanism how institutional investor overconfidence influences the risk of Chinese stock market in theory. At last, taking the relevant data in Chinese stock market, using securities investment funds as the representative of institutional investors, adopting fund turnover index to measure institutional investor overconfidence level, we study the relationship between institutional investor overconfidence psychological preferences and the risk of Chinese stock market by empirical research.Concretely, this article makes theoretical and empirical analysis mainly based on the following three aspects:1,First of all, using descriptive statistics method, summaries the number and size of Chinese institutional investors. Then, generalizes the size and turnover of securities investment funds. And describe the fund earning using the rate of return of SSE Fund Index. Finally, using 16 open-end share funds as the representative of institutional investors, describes the total market value of shares held by the funds and funds turnover.2,On the basis of previous research results, under the hypotheses that the institutional investors are overconfident, this paper studies the effect mechanism of institutional investor overconfident psychological preference on the risk of Chinese stock market by setting up an appropriate mathematical model theoretically. The result shows that there are a positive correlation between institutional investor overconfidence psychological preferences and stock market price volatility, a positive correlation between institutional investor overconfidence psychological preferences and market volume, a negative correlation between institutional investor overconfidence psychological preferences and quality of stock market prices, a negative correlation between institutional investor overconfidence psychological preferences and investment income.3,Using 16 open-end share funds as the representative of institutional investors, and time series data and panel data in Chinese stock market from the first quarter of 2004 to the fourth quarter of 2009 period for the sample, adopting market return to measure market performance,and fund turnover index to measure institutional investor overconfidence level, discusses the impact institutional investor overconfidence psychological preferences on the risk of Chinese stock market from both stock market index and individual stock prices aspects. The research result shows that higher the degree of institutional investor overconfidence, the greater the risk of the Chinese stock market. The empirical results can explain soaring and crashing and a huge risk phenomenon in the Chinese stock market to some extent. At the macro level and micro level, the influences of fund shareholding ratio on the Chinese stock market risk are different. At the macro level, there is a significant negative correlation between fund shareholding ratio and stock market price volatility, which plays a stabilizing role on the broader market. At the micro level, there is a significant positive correlation between fund shareholding ratio and stock market price volatility, and the elevation of fund shareholding ratio will increase the volatility of individual stocks.