Heterogeneous Institutional Preferences And Informativeness

Using complete semi-annual stock holdings of seven different types of institutional investors: mutual funds,insurance companies,qualified foreign institutional investors(QFIIs),social security funds,proprietary trading portfolio of securities companies,asset management portfolio of securities companies,and trust funds,we investigate those heterogeneous institutional investors' preferences and informativeness in the China's A-shares market from 2005 to 2017.We find that although those institutional investors in aggregate prefer to hold growth,larger size,higher share price,lower turnover,lower volatility,higher leverage,and past winner stocks,insurance companies and trust funds like to hold value and past loser stocks,suggesting that insurance companies and trust funds are more conservative than other institutions.We also examine the relationship between the stock holdings of institutional investors and future stock returns,and the impact of holding changes of heterogeneous institutions on stock returns in the following six months.According to the empirical results,we draw the preliminary conclusion that the fund,QFII and social security funds are more informed than other institutions.Furthermore,we sort the market value of various institutional investors from large to small,and obtain three types of investment portfolios.Our trading portfolio analysis shows that social security funds demonstrate a superior stock picking ability while insurance companies' trading portfolio exhibits a loss in the following six months.Collectively,because social security funds have a higher than average churn rate and insurance companies exhibit a lower than average churn rate during our sample period,our evidence suggests that more informed institutions also trade more often in the China's A-shares market.Their trading behavior may reflect the information related to future earnings.In summary,we believe that social security funds are the most informed institutions.They do transactions more frequently to take advantage of their informed roles.This research conclusion has reference significance and guiding value for the investment activities of individual investors in the China's securities market.By comparing the investment behaviors of heterogeneous institutional investors,we can better understand the concept of heterogeneity,also help the government regulate investor behavior,improve existing market rules,and promote the healthy development of the securities market.