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Empirical Study of the Relationship between the Institutional Investor Behavior and Stock Price

Author: LiuJunJiang
Tutor: LiLiLi
School: Qingdao University
Course: Finance
Keywords: Behavior of Institutional Investors Structural Vector autoregression Model Panel Data Model
CLC: F832.51;F224
Type: Master's thesis
Year: 2011
Downloads: 53
Quote: 0
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Abstract


The structure of the global financial markets has undergone a fundamental change along with the innovation of the investment technology and the deepening of the investment concept in the context of financial globalization. Our country strive to develop institutional investors and enrich the securities markets’participants in order to promote the healthy development of securities markets.This essay describes the development status of institutional investors in China. It analyzes the relationship between the institutional investors’behavior and the returns and volatility of stocks from the theoretical angle:on the one hand, institutional investors who are relatively rational, prefer less volatile stocks and use the portfolio diversification strategy, which means institutional investors can enhance the validity of stock market; on the other hand, stock returns can affect institutional investors’ behavior, short-sighted behavior of institutional investors can exacerbate the volatility of market. The paper constructs institutions buy and sell indicator index as institutional investor indicator, uses institutional investors high-frequency sub-pen data, and uses structural VAR model and panel data models to analyze the correlation between trading behavior of institutional investors and the returns and volatility of stocks. The results of the study show that:there are multiple influences between the trading behavior of institutional investors and stock prices. On the one hand, institutional investors’ buying and selling have a positive and negative impact on the stock returns respectively. They have positive effects on the stock price volatility and institutional buying’s effect is more significant. Institutional investors’behavior can destabilize the stock market. On the other hand, stock returns have a positive and negative impact on the institutional investors’buying and selling respectively. The influence of stock returns lasts long on the institutions’trading behavior. Institutional investors take positive feedback trading strategy, and stock price volatility’s influence on investor behavior is not obvious. To guard the healthy and stable development of security market in China, it is necessary and feasible to increase institutional investors’number and enlarge their scale, and it should be supported by complementary policies and regulations. Besides, to enrich the institutional investors’participant is also especially important.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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