Research On The Way How Institutional Investors Affect Stock Price Synchronicity

Stock Price Synchronicity means that stock prices move in the same direction，which implies that ifrm-specific information is not fully capitalized into stock prices.This phenomenon not only eliminates the difference in companies of sorts andweakens the economic role of prices that serve as signals for investment decisions? butalso decreases the resource allocation efficiency of the stock market o However, thestock price volatility or low Stock Price Synchronicity does not necessarily mean thegood operation of the stock market. It is probably noise trading, which is caused bythe inability of mining ifrm-specific information of the market participants. The exactmeaning of the Stock Price Synchronicity depends on the way that the marketparticipants, especially the institutional investors who enjoy an advantage inprofessional knowledge, skills and capital, affect the Stock Price Synchronicity;namely, if the market participants can mine the ifrm-specific Information very well,the difference in the stock price volatility means the good operation of the stockmarket. If they cannot, it stands for the bad operation of the market.To study how the institutional investors influence the Stock Price Synchronicity,the essay studied on the Small and Medium-sized Enterprises of China from2007to2011; ifrstly we focused on wether the institutional investors can influence the StockPrice Synchronicity; secondly，we used earnings management equation to calculatethe proxy variable of ifrm-specific Information; and thirdly studied on theinstitutional investors’ ability to mine ifrm-specific Information. The study found thateven the Institutional Investors can not analyze the information of the companyaccurately. The behavior of Institutional Investors in SME is blind rather thanrational.