The Relationship Between Institutional Investors And Stock Price Volatility Research In China

The security market in our country starts late and its development is not perfect while compared with the advanced countries. Moreover, the security market fluctuates acutely. From2005to2007, Chinese stock market increased514percent, and dropped268percent from2007to2008. This shows that the rise and drop of the stock market fluctuates violently. Such intense fluctuation has an adverse influence on the healthy operation of the stock market. The original purpose of the Chinese institutional investors is to stabilize the stock market and promote its reasonable development. However, in recent years, the trading of the institutional investors seemingly hasn’t reached the expectant goal. In order to explore the reasons of the severe fluctuations of the stock market and promote its healthy operation, this paper aims to study the relation between the institutional investors and fluctuation of the stock price, and analyze whether the institutional investors exacerbate the stock price fluctuations thoroughly. Based on the conclusion of the research on the relationship between the institutional investors and the stock price by domestic and overseas scholars, this paper studies the two both in theoretical and empirical aspects. Theoretically, based on the behavioral finance theory and through the methods such as constructing market model, this paper shows that Chinese institutional investors intensify the fluctuation of the stock price by analyzing the impact of the flock and short-sighted behavior of the institutional investors on the stock price. Empirically, this paper selects the first40heavy warehouse stocks of the open stock fund from the first quarter in2008to the fourth quarter in2011, and fully demonstrates the accurate results of the theoretical analysis by using the panel data and constructing the Individual fixed effects model. According to the theoretical and empirical analysis, this paper concludes that Chinese institutional investors have exacerbated the fluctuation of the stock price, and puts forward that solving this problem should be based on the two aspects of improving the security market and optimizing the institutional investors, and meanwhile, giving full play to the institutional investors’functions in stabilizing the security market.