Research On The Effect Of Private Information Utilization Degree Of Institutional Investors On Stock Returns

Because of information asymmetry and other reasons, there are a lot of informed trades caused by private information in the stock market. Informed trades can significantly affect stock returns. Most previous related studies about the factors have focused on the sources of information, while ignoring the stock traders’ behavior characteristics may impact the stock price. This paper proposes a new concept which measures the behavior characteristics of institutional investors named as utilization level of private information and study the influence on the stock returns by the utilization level of private information and probability of informed trades.First, this paper studies and reviews the related study and papers. And it next selects the 208 days trading data of China Life Insurance company and HuShen 300 index and calculates the probability of informed trades(PIN) in the EKOP Model used the SAS programme. Next this paper constructs a new model based on the CAPM model to make regression analysis between stock returns and the utilization level of private information and probability of informed trades.Results confirm that stock returns are significantly affected by the utilization level of private information of institutional investors. On the one hand it describes the features of the behavior of traders have a significant impact on stock returns, on the other hand it indicates institutional investors can use private information disposal to earn extra profit.Private information affects stock returns by two ways:probability of informed trades and the utilization level of private information. Therefore, the listed companies should reveal information timely and accurately to minimize the asymmetric information and be responsible for the shareholders’ interests. The institutional investors should adhere to professional ethics and professional conduct to avoid the occurrence of insider trading and reduce the usage of private information. The regulators should strengthen supervision over information disclosure and insider trading. Also the regulators should be vigilant to the fluctuations of the stock returns and maintain the healthy development of China’s stock market.