Research On China's Stock Market Reversal Effect Based On Historical Returns And Institutional Investors

With the development of financial innovation and the complication of the financial system,the Effective Market Hypothesis(EMH)has become increasingly prominent in explaining the real problems.In particular,it cannot reasonably explain the market anomalies represented by stock market reversal effect.And it is questioned by empirical test.The reversal effect is manifested in stocks that have not performed well in the past.But in the following period of time,there is a strong trend to reverse and the stock price shows good performance.The reversal effect that cannot be reasonably explained by traditional asset pricing theories has caused widespread concern and discussion.The existence of reversal effect,the reasons for formation and reasonable interpretation have become the research topics that all countries in the world value.At the same time,from the perspective of investors,they can use the reversal effect to build a portfolio strategy to make profits;from the perspective of understanding market characteristics,reversal effect explains market volatility from the perspective of anomaly.It is of great significance to improve market supervision and further promote the healthy development of the market.This paper cuts in from the perspective of historical returns and institutional investors to discuss the reversal effect of China's stock market.First,the historical returns of stock market will affect investors' investment decision-making behavior,further affecting stock market volatility,and even trigger stock market reversal effects.Second,institutional investors generally have the characteristics of large scale,strong capital,high degree of specialization,and rational investment,and is member of the stock market that cannot be ignored,the change in institutional investors' investment behavior is likely to cause price shocks to the market,leading to market volatility and easy to induce market anomalies such as reversal effects.Therefore,it is of great practical significance to discuss the stock market reversal effect from the perspective of historical income and institutional investors.In addition,Chinese institutional investors have taken advantage of the “super-regular development institutional investors” of the China Securities Regulatory Commission to rapidly grow and develop.But along with this,the Chinese stock market has also experienced several ups and downs,especially the few major losses since the 2015 stock market crash.Although the stock market will inevitably have a rise and fall adjustment,it will not be more and more volatile in the stock market.There must be some connection between institutional investors and stock market volatility.Therefore,more scholars naturally associate institutional investors with stock market volatility to empirically explore institutions.The correlation between investors and stock market volatility has also become a hot research topic,it also provides evidence support for the study of the correlation between institutional investors and stock market reversal effects,and helps to correctly understand institutional investors and explain market volatility.Therefore,from the perspective of historical returns and institutional investors,this paper empirically analyzes the relationship between historical stock returns,institutional investors and reversal effects in China,and hopes to explain the reversal effect.This paper selects a listed company that comprehensively includes the Shanghai and Shenzhen stock boards,small and medium-sized boards and the GEM.Empirical research examines the impact of changes in stock historical cumulative yields and institutional investor shareholdings over the past quarter on the short-term reversal effect of Chinese stocks during the period from January 2010 to December 2017.The empirical findings:(1)China's stock market has a short-term three-month reversal effect,while the short-term one-month reversal or momentum effect is not significant;after grouping sample companies by market capitalization,the reversal effect of small and medium-sized companies is greater than that of large companies.(2)The increase in the magnitude of the reversal effect is related to the increase in the shareholding ratio of active institutional investors in the past quarter,that is,the increase in the number of active institutional investors in the past quarter will increase the range of stock reversal gains.(3)Fama-MacBeth(1973)two-stage regression results show that the historical returns performance of stocks and the changes in the proportion of active institutional investors in the past quarter can be used as an important factor in predicting the shortterm three-month reversal effect.The research in this paper explains the reversal effect from the perspective of historical returns and institutional investors.it provides reference for investors to use the reversal effect to construct investment strategies to a certain extent.At the same time,the relationship between institutional investors and the reversal effect helps to understand the characteristics of Chinese institutional investors and provide reference for promoting the rational and coordinated development of institutional investors.