| Investor institutionalization is gradually becoming a notable characteristic. Since the 1980's, with economic development, household wealth growth, financial market expansion and investment instruments enrichment, the institutional investors represented by mutual fund, pension fund and insurance fund have become the leading force. Strictly speaking, China's institutional investors came forth in the 1990s. Under the guidance of the CSRC, a diversified market structure has formed, including securities investment funds, securities companies, insurance companies, pension funds, corporate annuities and qualified foreign institutional investors. They are playing more and more important role in the financial market. So it's very important that the theoretical and empirical research on China's institutional investor is conducted immediately.This dissertation consists of seven chapters; major contents of each chapter are outlined as follows:Chapter I Introduction. This chapter introduces the research ideas and analytic framework of this dissertation. It covers research background, ideas, contents, methods and research improvement and innovation.Chapter II Related Theory Basis and Literature Review. This chapter reviews and sums up the findings of research on institutional investor from Efficient Market Hypothesis (EMH) and behavior finance respectively.Chapter III introduces the institutional background of institutional investors development in China, including development phases, status quo of institutional investors and question in process.Chapter IV investigates whether tangible information or intangible information drives the BM value effect and that how institutional investors react to such two kinds of information, armed with information decomposition of the book-to-market ratio (BM).Chapter V examines the impact of momentum trading by institutions on stock return momentum and market efficiency, using an ex-ante measure of momentum trading by institutions.Chapter VI provides the empirical evidence of institutional investors and market stability. It examines whether the introduction of institutional investor can reduce stock return volatility.Chapter VII sums up the research findings of this dissertation, including research conclusions and lessons, research limitations and future research direction.This dissertation has drawn the following conclusions: 1. Compared with foreign institutional investor in developed markets, China's institutional investors are facing a number of questions. First, they have poor ability to resist systemic risks for small scale and lack of strength. Secondly, the Securities Investment Funds monopolize the market. They make profits mainly depending on stock price premium and face redemption pressures. It's the characteristics of China's institutional investors that create the special market influence.2. While a stock's future return is unrelated to the firm's past accounting-based performance, it is strongly negatively related to the intangible information return. The BM effect results from investor overreaction to intangible information of past firm return. Further analysis reveals that institutional investors buy (sell) shares in response to positive (negative) intangible information while they react little to tangible information. It indicates positive-feedback investment strategies followed by institutional investors can intensify market overreaction and the BM effect. Further, the tendency of institutions to buy stocks in herds is increasing in past intangible returns, whereas the tendency of institutions to sell in herds is decreasing in past intangible returns. The results are consistent with the interpretation that positive (negative) intangible information tends to trigger institutional herding on the buy (sell) side.3. The securities Investment Funds act as momentum traders in bear market while as contrariant traders in bull market. Further analysis reveals that momentum trading by investment funds intensifies stock return momentum but stock price experiences a long-term reversal. It indicates return momentum results from mispricing instead of risk. The securities Investment Funds hamper market efficiency when they act as momentum traders.4 Both momentum trading and herding behavior intensify market anomalies and hamper market efficiency. However, momentum trading or herding behavior is the only one of the many aspects of the institutional investor. It doesn't mean the institutional investors in aggregate make the market less efficient. The microstructure model shows that the portfolio with high institutional holdings reflect market wide information before the portfolios with less institutional trading. It's consistent with the hypothesis that institutional trading reflects information and increase the speed of price adjustment for securities in which institutional investors have greater ownership.5. The relation between institutional holding and stock price volatility varies in each quarter. As a whole, the volatility is negatively related with institutional holdings. So to some extent, the institutional investors reduce the market volatility and improve the market stability.Major improvements and innovations are evident in the following aspects:1. With regarding to the research framework, this dissertation takes BM value effect, long term reversal and momentum effect as research breakthrough points and investigates the role which the institutional investors play in the formation of market anomalies. Moreover, this paper examines how the institutional investors affect individual stock return volatility from both static and dynamic perspectives.2. As to the theory, this paper attaches importance to the intersection of different majors. For example, Chapter IV decomposes the information contained in BM into tangible information and intangible information from Accounting perspective and examines the institutional investors' reaction to such two kinds of information. Chapter V investigates the impacts of momentum trading and aggregate trading by institutional investor on market efficiency from a combined perspective of microstructure theory and behavior finance.3.In terms of the method, for inadequate data, this paper uses some new econometric methods to ensure the empirical results robust. Chapter IV adopts Panel-VAR technique. Chapter V introduces dynamic panel data regression method.4.Through the systematic research, this dissertation forms a comprehensive and basic judgment on institutional investors, breaking the limitations of the previous domestic literature which only focuses on some phenomenon on institutional investors.
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