A Study On The Relationship Between The Behavior Of Institutional Investor And The Stability Of Stock Market

With the stable growth of our economy, stock market develops and grows rapidly, especially for the institutional investors, grow very quickly, are becoming the main component of the stock market. But because the China's stock market started in late of last century, the development time for the institutional investors is short; there is still a big gap between the developed countries. Their investment philosophy is not mature, more about speculation which often exacerbated market volatility, not good for the market stability, also not good for the development of our stock market, and against the purpose of letting institutional investors stabilize the market. We work hard to find the harmony relationship between the institutional investors and stock market, also find the correct way for development.This paper introduced about the background of China's stock market development and the basic content of institutional investors, then classify the institutional investors and analysis their investment. According to their investment behavior characteristics, find the affect they make to the stock market:on one hand, because of the rational behaviors, they can help to stabilize the market, but on the other hand, the speculative behavior can increase volatility of the market. Then, according to the analysis the relationship between position percentage of the institutional investors and market index, and the relationship between institutional investors and stock price volatility, we comes to an result that there is a positive correlation relationship between institutional investors'investment behaviors and market volatility, and the coefficient is more than 1 (one). In other words, approved that in the real practice, institutional investors do not play a role to stabilize the stock market, but exacerbated the volatility of the market. The reasons for that would be: development of stock market is not mature, deficiencies in the financial system, imperfect of the monitoring system, very few of investment products, and the herding in the institutional investors (speculative behaviors). So according to these instability factors, this paper gives some suggestions and solutions to help to erase the adverse effects brought by speculative behavior of the institutional investors, and also to promote the stable development of the stock market, to make sure institutional investors can help to stabilize the market.