Study On The Effect Of Institutional Investors On Stock Market

With nearly 30 years of development,China's stock market has been an essential part of the economy of the country and its stability is the premise of everything.The two drastic fluctuations in China's stock market?occurring in 2008 and 2015 respectively?had an enormous impact on China's economy.However,as China's capital market gradually becomes mature,investors improve their personal qualities and the government issues supporting policies,China's stock market has seen tremendous growth in comparison with the initial stage of its establishment.Investors are generally considered as individual investors and institutional investors.Due to the great differences in their professional knowledge and their much blindness in investment,individual investors are often considered irrational investors by the market;while the institutional investors have systematic investment strategies,professional investment advisers and huge funds,so they are endowed with high expectations by the market and developed and cultivated by the Chinese government as a market"stabilizer".Based on studying the impact and the role of institutional investors on the market,the paper begins with focuses on considering the influence of institutional investors on China's stock market and the interaction between them,and then explores the impact of different institutional investors on the classification of China's stock market because of different natures of institutional investors.First of all,it sets forth the research background,the significance and the definition of the research topic;secondly,it explains the basic concepts and then collates and sets out the literature on investment behavior and market impact of institutional investors;finally,it reviews the development history of the stock market along with institutional investors and divides the institutional investors into nine types?including fund,QFII,trust,non-financial listed company,finance company,social security,securities trader,bank and insurance company?.There are two parts of the empirical research.The first part is relationship between the overall shareholding ratio of institutional investors and the stock market's return rate.It can be found by establishing VAR model with 52 quarterly data from September2005 to June 2018 and testing it through Granger causality that there is significant bidirectionally influencing causality between the shareholding ratio of institutional investors?X?and the rate of return of Shanghai and Shenzhen stock markets?Y?.The second part concerns the classified empirical research on the stock market by institutional investors.The nine types of institutional investors can be roughly classified into four types by using factor analysis method:The first type is QFII?₁X?,insurance?X₂?,securities trader?X₅?,social security fund?X₆?and non-financial listed company?X₉?,whose position change is similar to that of the market;they make great contribution to China's stock market;the second type is finance company?X₃?,which has a decreasing position scale and diminishing impacts on the stock market;the third type is fund?X₄?,which fluctuates frequently in the short and has an unstable impact on the stock market;the fourth type is trust company?X₇?and bank?X₈?,which have a position change similar to that of the stock market but have small impacts on the stock market due to the limitation of scale.According to the classification and empirical observation,different types of institutional investors have different influences on the stock market.Our government should vigorously develop the main principal institutional investors,improve the current stock market system and strengthen the internal governance system of institutional investors,which will promote the long-term and healthy stock market.