An Empirical Study On The Impact Of Institutional Investors' Participation On Securities Market Information Efficiency

The efficiency issue of securities market influences the operation and developmentof the whole economy, and in which the information efficiency is the foundation andkey. While information content of stock price is an important indicator used to measureinformation efficiency, how to improve information content has been receiving muchconcerns all the time. And stock price synchronicity attract more and more attention as anew perspective to research the information content of stock price. Furthermore, withthe rapid development of institutional investors, their influence on the securities marketis becoming more and more strong. Combined with the theory of stock pricesynchronicity, this paper builds several multivariate regression models to examine theimpact of institutional investors' participation on information efficiency systematically.Firstly, we study the effect of institutional investors' participation on stock pricesynchronicity. We select the data of the year2008-2010from all listed A-share assamples, employ the proportion of institutional ownership, the change of institutionalownership and the number of institutional investors as quantitative indicators used tomeasure institutional investors' participation, and treate the R2as a indicator used tomeasure stock price synchronicity. We use the basic regression model (OLS) and thetwo-stage least squares (2SLS) to discuss the relationship between institutionalinvestors' participation and stock price synchronicity, moreover the2SLS model rulesout endogenous problems caused by interactions between each factors and other factorswhich may influence the synchronicity. The research shows that these three quantitativeindicators have significantly negative effect on stock price synchronicity, which meansinstitutional investors' participation has a remarkable effect to increase informationcontent of stock price. Based on the above study, we use cross test to examine the effectof institutional investors' participation on information efficiency. The result concludedthat the increase of institutional investors' participation is contribute to improve theearnings information of company level in stock price, reduce the phenomenon ofpostearnings-announcement-drift, and increase the contemporaneous effect andprice-leading effect, thus improve market information efficiency. At last, we put forwardseveral policy suggestions based on the research findings.