The Effect Of Institutional Investor Ownership On Extreme Stock Price

As is known to all,China’s stock market has occurred several extreme ups and downs of stock price since established,so in 2001,the regulatory department proposed “supernormal development of institutional investors” to stabilize the market via optimizing investor structure.Up to this day,the proportion of institutional investor in investor structure has been increasing steadily.The aim of this essay which investigates the influence of institutional investor ownership on extreme stock price is to examine whether the development of institutional investors has a positive impact on stabilizing our market as expected by the authority.This essay fulfills the relevant researches on institutional investors stabilizing the stock market,and refraining extreme stock price,and provides empirical evidence to validate the rationale for the policies encouraging the development of institutional investors made by supervision department.And by enhancing the participation of institutional investors and creating a market environment conducive to institutional investors to play their positive role,institutional investors can form a good interaction with the stock market,reduce extreme stock price risks,and thus help the steady development of China’s stock market and improve the confidence of investors in China’s stock market.This essay mainly uses two study methods: literature study and empirical study.Starting from sorting relevant literature from domestic and foreign countries,then proposing empirical hypothesis based on theory,next testing the hypothesis via empirical model to reach empirical results,and eventually making policy suggestions established on results and China’s stock market situations.This essay uses the unbalanced panel data of institutional investor ownership in China’s A share market from 2006 to 2018 as sample to solve three questions through empirical study which are: what is the influence of institutional investors on extreme stock price? Whether the impact of institutional investors on risks of extreme ups and downs is differential or asymmetrical? Whether the monitoring incentive and cost of institutional investor affect the function of institutional investors exerted on stock market?The empirical study is built on singe error factor model and dynamic unbalanced panel model by using unbalanced panel data indicating that,after solving endogeneity problems,the increase in institutional investor ownership significantly lower the occurrence of extreme upside and downside risk of stock price and is more significant in restraints on crash risk.The study also finds out that the inhibition of institutional investor ownership on extreme stock price are more significant in stocks with more concentrated ownership,more transparent information disclosed and higher market volatility.In addition,this paper also explores the influence of institutional investors with state-owned attributes on extreme stock prices.Through the event study and compared the abnormal returns CEFC holdings and non-holdings,we concluded that,CEFC,as a representative of institutional investors with state-owned attributes,played a role in suppressing extreme stock prices in 2015 stock market crash,which is conducive to the return of stock prices to normal.At last,this essay proposes four policy suggestions based on empirical study and China’s stock market situations,which are: increasing the participation of institutional investors,cultivating long-term and rational institutional investors,building fair and compliance investment environment and consummating disclosure system of listed companies.