Institutional Investors And The Financial Derivatives Market, The Interaction Between Research,

Following the rapid growth of global economy and continuing deepening of finance, the seventy's of twenty century saw the institutional investors whose main members were pension funds, insurance funds and mutual funds growing up rapidly in the developed countries. Since then, such institutional investors have been strongly promoting the development of capital market, further deepening of financial system and the modernization of market dealings. To put it in detail, in the capital market, institutional investors have become the primary investors, whose huge and particular demand tempted those farseeing and willing investment banks to help the private placement of large corporation's securities directly to them, which ended the long-term monopoly of securities placement & issue by the large investment banks, while the furious competitions of the primary market depressed the issuing expenditure of securities and trading costs. In addition, the development of institutional investors has enriched the choice of individual's investment and enterprise financing, greatly challenged the role of banks in the traditional financial system, and the increasing competition between all kinds of financial institutions also has improved the financial service. Because of the institution investors development, their higher demanding of the trading systems and rules has not only accelerated the latter's reform but the modernization of the settlement and payment facilities and systems as well.One of the most striking innovations in the financial markets of the developed countries in the 70's of twenty century is the emerge and rapidly growing of the financial derivatives market whose most important function is to transfer risks. Financial derivatives instruments pools, divides and transfers the risks of economical system through the market, which makes it possible for the market participators to transfer their undesired risks or gain profit by actively bearing risks. Another important function of financial derivatives market is price discovery. Thousands of participators doing dealings in the derivatives markets, their behavior of open bidding makes derivatives markets become "a natural input point of all important information2", and then the probable price in the future can be find out. Besides, as there is some inherent linkage between the derivatives and related underlying securities, financial derivatives markets also play an important role in promoting the liquidity of underlying markets and capital forming.Interestingly, institutional investors have been developing and growing up to become important financial markets participators after seventy's of twenty century. As an important makeup of financial markets, derivatives markets have emerged and expanded rapidly at the same time. So what about the interactive relations between them and what we can learn from it is the central problem to be researched in this dissertation.The structure of this dissertation is as follows:Chapter one presents the development of the institutional investors and financial derivatives market. Firstly, a clear definition of the institutional investors is giving. After introducing the status quo of institutional investors and financial derivatives market, the background and reasons of their rapid development are briefly analyzed. The emphasis of this chapter is put on the next two problems: the investment advantages and tradingdemand characteristics of institutional investors, the risks and benefits of financial derivatives instruments.Chapter two presents the influence of institutional investors on the financial derivatives market. Firstly, institutional investors promote the development of financial derivatives market in market scale, liquidity and trading variety. For example, the demand of institutional investors to manage risks and gain profit greatly accelerates the innovations of derivatives variety. Besides, the active and negative influence of institutional investors on the financial derivatives markets were further investigated th...