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A Study of Correlations between Institutional Investors and Stock-Market Volatility

Author: ChenLan
Tutor: HuJinZuo
School: Shandong University
Course: Finance
Keywords: institutional investors stabilization market volatility individual volatility
CLC: F832.51
Type: Master's thesis
Year: 2009
Downloads: 470
Quote: 0
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Abstract


The correlation between the institutional shareholdings and the stock-market volatility has always been one of the hot arguments of the domestic and foreign academic circles for a long period, but neither the theoretic analyses nor the empirical tests have reached a consistent conclusion. The institutional investors are considered as rational long-term investors because of their possession of more information and stronger capabilities in professional analysis, and therefore can perform the function to stabilize the stock-market volatility. From this starting point of view, the Chinese administration put forward the strategy to develop the institutional investors super-conventionally, promoting the rapid enlargement of the scale of the latter. However, the institutional investors in China disturbed the stock-market stability to a certain extent on the contrary during the early stage of their development due to the imperfectness of the relevant legislations and supervisory system and the ubiquity of irregular operations in addition to lack of a rational and professional investment philosophy at the same time. In the past few years, the institutional investors had come to regularization and become one of the major investment subjects gradually through the development. This paper focuses the study on whether the institutional investors have begun to function in stabilizing the stock market under the new situation. It first reviews the developments of the domestic and foreign institutional investors and summarizes the literature on the relevant theoretic and empirical studies made in China and abroad, based on which it takes the securities investment funds as the representative of the institutional investors and verifies empirically, by means of the related data collected from the Chinese capital market, the correlations between the institutional shareholdings in China and the volatilities of the stock market and individual stocks from 2004 to 2008. According to the results from the empirical test, the problems existing in the present status of the development of the institutional investors in China are analyzed to put forward policy recommendations on the issues related to the future development of the institutional investors. The huge impact of the macro-environment factors on the volatility of the Chinese stock market brings quite large interference to the study of the influence of the institutional shareholdings on the stock-market volatility. To find a solution, this paper constructs creatively the method of decomposing the entire volatility of the individual stocks to prove the correlation between the former and the latter more effectively by making use of the decomposed volatility data to remove the interference of the market so that the conclusions are more accurate and more significant practically.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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