The Research On The Effect Of Securities Market Efficiency Made By Institutional Investors

1. The meanings of the research on the effect of securities market efficiency made by institutional investorsAccording to the history of the development of the securities markets, it is an inevitable trend that institutional investors gradually expand their market share. Since the late 1990s, as the main institutional investors in China, fund companies have rapidly grown and become the main investor in the securities market. The development of institutional investor has a significant impact on the securities market. So, research on the effect of securities market efficiency made by institutional investors has great theoretical and practical meanings in terms of unifying the understanding of market efficiency for all the investors, accelerating the pace of development of institutional investors, establishing a sustainable, stable, and healthy securities market. It also plays an active role in the social and economic development and overcomes the possible negative impact made by security market.2. The review of the theories between securities market efficiency and institutional investorsSince 1970s, domestic and foreign researches on securities market efficiency have mainly focused on testing and empirically studying the Efficient Market Hypothesis (EMH) and amended it.Since 1990s, most domestic scholars have equated information effectiveness with securities market efficiency or search on securities market efficiency in the aspect of EMH for the impact of western academia. Some others have researched the connotation of securities market efficiency and emphasized on the importance of resource allocation efficiency as well as information efficiency.For the effect of institutional investors on securities market efficiency, foreign scholars mainly researched on it in terms of institutional investors'impact on volatility, the management of the listed companies and the performance of listed companies. Domestic scholars also researched the effect in some aspects of securities market made by institutional investors, including characteristics of the transaction, investment returns, IPO, corporate management, and so on. However, there are obvious differences in the conclusions among them. Little literatures systematically discuss the effect of securities market efficiency made by constitutional investors. So far, there is nearly no systematical empirical study on the relationship between institutional investors and securities market efficiency.3. The connotation of securities market efficiency and evaluation principlesThe ratio of cost and income of information processing, asset pricing, trading operations and market regulation of securities market resource embodies securities market efficiency. Whether securities market efficiency is high or low manifests the degree of the function. So, securities market efficiency should include not only information efficiency as a core of securities market efficiency, but also financing efficiency and operating efficiency, and so on. In fact, according to different criterias, securities market efficiency can be classified as a sub efficiency system of correlations and interactions with each other.Evaluation of securities market efficiency should be based on the scientifical classify of the securities market's sub-efficiency and a series of reasonable evaluation index system. Evaluating securities market efficiency should follow the principles: First, the fundamental purpose of evaluating securities market efficiency is to promote the economic entities efficiency. Second, evaluating securities market efficiency should consider more besides the effectiveness of securities market. Third, the national conditions and characteristics of economic system should be reflected before evaluating securities market efficiency.4. The mechanism of the effect of securities market efficiency made by institutional investorsTo sum up, institutional investors have the following characteristics: (1)collective investment,(2)intermediary agent,(3)professional investment ,(4)distributing investment return. These attributes decide that institutional investors have some common behavior characteristics: (1)stronger awareness and ability of interfering with price, (2)collectivization policy, (3)finite rationality and herding behavior, (4)value investment and long-term investment, (5)predilection for equity investment and scattered investment.There are several mechanisms and manifestations of the effect of securities market efficiency made by institutional investors: (1)Institutional investors speed up the dissemination of market information and improve market information efficiency through discovering information quickly,. (2)Based on strong market pricing capabilities, long-term investment philosophy, professional management capacity, institutional investors guide the direction of market investment and improve market pricing efficiency and resource allocation efficiency. (3)Through enhancing market stability, improving liquidity, reducing market transaction costs, institutional investors drive financial innovation. (4)Through enhancing the external supervision of listed companies, institutional investors upgrade the management level of listed companies and improve the whole market management efficiency.5. An empirical study on the effect of securities market efficiency made by institutional investorsâ… .The effect of market information efficiency made by institutional investorsThe study constructs two sample indices of institutional portfolio and non-institutional portfolio in order to research the effect of market efficiency made by the participation of institutional investors and respectively analyzes the serial correlation of their logarithm yield by using variance ratio tests. The result shows that the serial of logarithm yield of institutional portfolio index has weaker correlation than that of non-institutional portfolio. To some extent, it indicates that the participation of institutional investors improves market information efficiency.â…¡. The effect of market operating efficiency made by institutional investorsBy using two samples average t-test, variance of two samples F-test and GARCH(1,1) model, the study researches the price volatility between institutional portfolio and non-institutional portfolio in terms of stock and increment. First, in recent A stock market, there is not significantly negative correlation between the participation of institutional investors and the volatility of stock market. Second, the result shows, as institutional investors increase their investment on portfolio, the volatility goes down, and the vice versa. This indicates that institutional investors play a certain role in stabilizing the market in the stock market of China. However, on the whole, there isn't significant linear relationship between the shareholder ratio of institutional investors and stock volatility. So, it is impossible to reduce market efficiency by only developing institutional investors.By using two samples test, the study compares the stock market liquidity of the different participation of institutional investors. The result shows that the liquidity of institutional portfolio is significantly better than that of non-institutional portfolio. So, the participation of institutional investors improves the market liquidity.â…¢. The effect of market resource allocation efficiency made by institutional investorsBy analyzing relations between the changes of IPO underpricing of china's A stock market and other factors, the result shows that participation of institutional investors in pricing inquiry and placement are favorable for improving market pricing efficiency. Under the inquiry system, the pricing efficiency of new issue is noticeably improved and information transmission efficiency is significantly enhanced.By analyzing whether institutional investors have the ability of discovering the stock's value, the result shows that portfolio on which institutional investors increased their investment have better performance than portfolio on which institutional investors decreased their investment. Through deeply investigating, institutional investors could enhance their ability of selecting stock. They could find the potential value of listed companies and add listed companies'stocks of higher investment value into their portfolio. This shows that institutional investors have the ability of detecting the value of listed companies in advance.By analyzing whether institutional investors have the ability of guiding the secondary market, the study draws the following conclusions: portfolio being held for long by institutional investors gains the extra return. However, as time going by, the extra return gradually declined and institutional investors enhanced the secondary market efficiency.6. Routes for optimizing institutional investors based on improving securities market efficiencyThere are some main routes for optimizing the institutional investors.(1)Improving information disclosure system of institutional investors. (2)Increasing the operating levels of institutional investors, establishing scientific and efficient investment decision-making mechanisms of institutional investors. (3)Improving the risk control abilities of institutional investors. (4)Increasing the management levels of institutional investors, regulating the internal control structure of institutional investors, improving the incentive mechanisms of institutional investors.7. Conclusion and suggestionInstitutional investors have a growing effect on securities market. Its development is favorable for enhancing securities market efficiency. However, institutional investors'illegal acts will impair the interests of the other players in the market and reduce securities market efficiency. So, the government should create a favorable policy environment, financial environment and self-discipline environment for the institutional investors in order to improve securities market efficiency.Based on previous researches, the study researches securities market efficiency in the aspects of the degree of the function and the connotation of efficiency in economic. The study redefines the meaning of securities market efficiency and systematic classification, summing up a set of qualitative and quantitative index system of evaluating securities market efficiency, proposing the principle of evaluating securities market efficiency.By logic reasoning and empirical analysis, the study raised an innovative framework of researching the relationship between institutional investors and securities market efficiency. Based on analyzing the attributes and behavior characteristics of the institutional investors, the study researches the mechanism and effect of various sub-efficiencies which include information efficiency, operating efficiency, resource allocation efficiency, and so on made by the institutional investors. This research results fill a gap in this field and provide a theoretical basis for regulating and developing the institutional investors.