The Impact Of Informed Market Participants On Stock Price Synchronicity

Stock Price Synchronicity is described as how stock prices move in the same direction together. The level of synchronization can be used to evaluate the information content of stock prices. If stock price shows low Synchronicity, stock price can fully reflect the firm-specific information. On the contrast, high Synchronicity means that less firm-specific information are reflected into the stock prices. High Synchronicity not only reduces the difference between stocks, but also undermines selection, feedback and resource allocation functions of stock price. Informed market participants primarily refer to securities analysts, institutional investors and insiders, who master firm-specific information. These participants are considered to play an important role in information transmission in the market and have the most direct impact on the stock price. At present, in China, the studies about stock prices synchronization was relatively few. This paper is based on theory that informed market participants played the role of information transmission. I use synchronization index (R2) as test indicators, which is brought forward by Roll. Using Chinese stock market dates, I study the Impact of Informed Market Participants on Stock Return Synchronicity, which includes securities analysts, institutional investors, and insiders.This paper selects all of the listed A shares as a sample and gets together five years dates, from 2004 to 2008. Through multiple empirical models, this paper studies the relationship between the securities analysts, institutional investors, insiders and stock price synchronicity. Empirical Study shows that: firstly, On the whole, from 1995 to 2008, except for a few years, the stock price synchronicity is in a downward trend; secondly, Institutional investor trading has a significant influence on the stock price synchronicity. Institutional investor trading reduces the price synchronization; thirdly, when controlling institutional investors or using simultaneous equations regression, the degree of the analysts track showed a negative correlation with stock price synchronicity; finally, Insider trading has negative impact on stock price synchronicity. However, when introducing institutional investors trading, its regression coefficient became not significant. At the last part of the paper, according to the results of empirical studies, I put forward a number of recommendations.