The Analysis Of Domestic Institutional Investors' Trading Behavior Based On Announcement

Our domestic securities market is going through a historic change that institutional investors, no longer the individual investors, will become the principal part of the market structure. Up to the end of 2006, the investing scale of institutional investors has taken up 30% of outstanding A-shares'market value.Why institutional investors have developed so rapidly? That's because institutional investors have inimitable colony advantages compared with individual investors. These unconditional advantages include possession of funds, collection and disposal of information, design of investing strategies, etc. Based on these advantages, institutional investors are supposed to be experienced in the procedure of dealing with information, and they should attain more income to continue their development. Then, do Chinese institutional investors really detect Chinese securities market's rules and make use of these rules to gain higher return?This thesis is written for answering the questions mentioned above by analyzing institutional investors'trading behavior around announcement. The analysis is based on"post-earnings announcement drift"and utilizing data of A-shares in Shanghai stock market to find whether institutional investors exploit the drift to design investing strategies for attaining high return. This analysis has practical meanings for understanding domestic institutional investors'trading behavior around announcement and constituting related policies.This thesis comprises five parts. The content and frame are as follows: Introduction. It introduces reasons of choosing this topic, and frame and content of the thesis. It points out that the rapid development of Chinese institutional investors determines the meanings of enhancing research. In the third section, the author presents some innovations of this thesis.Chapter 1: analysis on actuality of Chinese institutional investors. At fist, it introduces the concept, characters and sort of institutional investors. In order to make clear the meaning of institutional investors, this thesis introduces its concept from both overseas and domestic side. According to the need of research, the author adopted the most approbatory concept that institutional investors are professional and socialized groups and institutions, which include non-individual institutions that invest in stocks and bonds by using one's own funds or money collected through various financial tools. Besides, the characters of institutional investors introduced are strong information collecting ability, rational decentralization of invest risk and high scale economy. The second part of this chapter introduces our domestic institutional investors'actuality based on the data up to the minute.Chapter 2: theories about institutional investors'trading behavior. The first section refers basic theories involved in our analysis. Because our research on institutional investors'invest strategies is based on anomalies in the Efficient Market Theory, traditional main finance theories are presented, especially the EMH. Meanwhile, behavioral finance theory for explaining PEAD is concluded. The second section reviews overseas research and domestic research related to institutional investors.Chapter 3: analysis of institutional investors'trading behavior based on announcement. In the first section, research assumption and principles of disposing data are put forward. The data were selected according to 5 rules, and there are 300 samples after selection. The second section is description of data. Variables'concept and formulas are introduced. There are three main variables used in this thesis: standardized unexpected return, hold return and market return. Description of these variables is given according to results calculated.The third section is the most important party of this thesis. There are two parts in this section. Analysis on institutional investors with utilizing hold return is shown in the first part. Analysis is shown by charts and tables. The institutional ownership changes and ownership proportion of winner group and loser group from quarter t (announcement quarter) to quarter t+2 and hold return from quarter t to quarter t+3 are compared, which point out that the trading behavior of institutional investors from quarter t to quarter t+2 is inconsistent with PEAD arbitrage. A few conclusions are gotten by analyzing hold return balance: 1.using SUE to classify the sample is meaningful; 2. when market is in the condition of BULL, the changing range of winner group is wider than that of market group, on the contrary, the changing range of loser group is narrower than that of market group; 3. the hold return of winner group is much higher than market return, and the hold return of loser group is a little lower than market return. That means in the BULL market, investors are more sensitive to unexpected good news than bad news.The second part shows analysis of institutional investors'trading behavior around announcement. Through observing and analyzing of ownership change and hold return, no prove of adopting"return inertia strategy"by domestic institutional investors was found. In order to validate this conclusion, a model is used to find the relationship between ownership change, standardized unexpected return and former hold return. If institutional investors exploit PEAD, we expect the coefficients on SUEt to be positive and at least one of the coefficients on SUEt-1 to SUEt-3 to be negative.Chapter 4: conclusions and suggestions. The first section is about the results of empirical analysis and limitation of this research. The results include three points: 1.Our domestic institutional investors do not adopt"return inertia strategy"which based on PEAD to design invest policy; 2.The empirical results of market return show that hold return appears reversely in the third quarter after announcement, which testifies the overreaction of institutional investors and means our domestic institutional investors are not rational;3.From the view of market, our securities market has relatively short history and still has long way to develop to be advanced, so this market is full of gambling atmosphere. Meanwhile, the stocks in our stock market worthy of long-term investing are few. In a result, a lot of institutional investors give up long-term invest and turn to short-term invest. In the second part, a few suggestions are listed, such as perfecting securities market, enhancing supervision on institutional investors and building qualified institutional investors group.There are some innovations of this thesis:(1) Classifying A-shares in Shanghai stock market and design winner group and loser group by making use of standardized unexpected return which is calculated on quarter return information. Using quarter return information is unusual in resent literature.(2) Utilizing the latest data to analyze our domestic institutional investors' trading behavior fetches up the lack of empirical samples. The sample data's zone is 2002-2006 in this thesis, so this research is realistic in some degree.(3) Making use of classical regression method, and testifying the impact on ownership change in announcement quarter caused by standardized unexpected return of former three quarters, ownership proportion of former one quarter and former hold return to find whether institutional investors exploit PEAD.