Research On Association Between Institutional Investors’ Shareholdings And The Stock Market’s Volatility

Investors are economic behaviors in the capital market, who support money for capital market and transact with each other with shares or bonds. The whole investors conclude two kinds of investors:individual investors and institutional investors. Institutional investors can get more money and their investments are more mutual, also they have more power to analyses information. With the capital market developing, institutional investors are playing more and more important roles. So, it is essential to research the association between institutional investors’ shareholdings and the stock market’s volatility. The research can prompt the institutional investors develop more healthily, also can prompt our country’s capital market develop more stably.The subject of this study is the relationship between institutional investors’ shareholdings and the stock market’s volatility. With the method of theory combining with empirical, I established four hypothesizes and then verified them, and finally got the conclusions as follows:When institutional investors’ shareholdings increased, the stock market’s volatility will increase; In addition, I verified the hypothesis:the correlations between different kinds of institutional investors (concluding Fund, Securities, QFII and so on) and stock market’s volatility are not the same. In order to verify the stability of the models, I replacement some variables and did regression analysis. I found the results are same, so the models are stable.This paper research how institutional investors’ shareholdings influence the stock market’s volatility. This article is divided into five chapters. The first chapter is an introduction part which focuses on the purpose and significance of this study, the main structure of this paper, the research method and the main contributions and shortcomings and so on. The second chapter is literature review section. It is divided into two aspects:domestic literatures and foreign literatures. Chapter three is about hypotheses. ChapterⅣselected samples to verify the theoretical assumptions, and the results are analyzed and summarized. Chapter five concludes conclusions and put up on policy recommendations.Through theoretical analysis, I established the assumptions. I assume that institutional investors’ shareholdings will increase the stock market’s volatility, and further assume that different types of institutional investors will influence the stock market’s differently.Then I tested the hypothesis. I chose 21 industries in the Shenzhen Stock Exchange from January 2007 to February 2008 monthly data as the observed sample. The data is collected from the Shenzhen Stock Exchange market data website Topics in Statistics and Monthly Bulletin of Statistics. I established panel data model to reduce the endogenous relationship between variables, and using random effects regression model according to the purpose of the study. The results show that institutional investors’ shareholdings increase the stock market’s volatility, the greater the stock market volatility were, the higher institutional investors’ shareholding, and the interaction between different types of institutional investors and stock market’s volatility is different. In the last part of the empirical testing, in order to improve the conclusions convincing, I replaced some variables and test the empirical results.According to test results and combining existing literatures, in the last part of the paperⅠprompted suggestions about how to develop our country’s institutional investors. These suggestions can be divided two aspects:the macroscopic aspect and the microscopic aspect. The macroscopic aspect is that the government should construct public, effectively and transparent capital market in order to suppose good economic environment for developing institutional investors. The microscopic aspect mainly concludes that the government should improve the quality of listed company and should prompt reasonable policies to develop institutional investors.The main contributions of this paper are in the sample selection, time frequency and research ideas. In the sample selection, most of the relevant literature selected lists as the observed sample, using the volatility of the company ’s stock prices to represent the volatility of the stock market. In terms of institutional investors’ shareholdings, most of the scholars select Funds’ data as representative of it. These approaches ignore that the volatility of one company may not represent the entire stock market’s volatility. Also they see the institutional investors as a whole, but they did not consider the different types of institutional investors on the impact to stock market volatility may be different. In view of this, this article in accordance with the Commission "Guidelines on Classification of Listed Companies" requirement, the entire stock market into 21 sectors, select the industry as observed sample, thus the micro level and macro-level can be closely connected. On the other hand, this is not the same to most of the documents to the Fund as a representative of institutional investors, but to obtain the overall holdings of institutional investors, to make the data more representative, and further refinement to the main types of the overall data institutional investors, respectively, with different types of institutional investors and the relationship between stock market volatility. In the time and frequency, most of the previous studies sub-quarter of research, but in present situation, institutional investors’ shareholdings in the case of short duration in order to make the quarter of its holdings may not have continuous observation of behavior sex, the lower data frequency to overcome the conclusion brought the error. I chose data monthly, so that institutional investors put more shares into the observed behavior and changes in the scope to further improve the conclusions convincing.Of course, the article also has some shortcomings, which are mainly in the number of samples, theoretical discourse and research aspects of the detailed level. In the number of samples, due to restrictions on disclosure of related data and my limited time and energy, I cannot select enough data to do the research, thus makes me improve the accuracy of the data but the breadth of research is limited. Although in the paper I used rigorous econometric method to do empirically tested, the deviation of the conclusions caused by the lack of date still exists. In the theoretical discussion, I focused on empirical approach, so I only summarized the theory of the existing literature, which makes this paper be lack of theory supporting. Also the degree of detail of the study should be further enhanced, due to lack of practical experience, and I mainly depend on the network and data already in the public literature to study and research the topic, and cannot get first-hand information, so how the institutional investors invest in the stock market’s could be research further.