The Heterogeneity Of Institutional Investors And Its Impact On Securities Market

Since the 1970s,institutional investors around the world have developed rapidly.In the stock markets of western countries,institutional investors have become the most important participants;compared with developing countries,the volatility of their stock markets is also relatively low.In 2000,China put forward the strategy of "supernormal development of institutional investors",hoping to increase the power of professional rationality,reduce the speculative nature and increase the stability of the stock market through the development of institutional investors.After more than 20 years of development,the institutional investors in our country have begun to take shape,but the phenomenon of excessive price fluctuations in the stock market does not seem to have greatly changed.On the one hand,the suddenly rise and full of stock market in 2015,as well as the accompanying financial market anomalies of"thousand shares limit up,thousand shares limit down",indicate that the volatility of China’s stock market is still high and the volatility risk has not decreased.On the other hand,from the perspective of institutional behavior,institutional investors often engage in speculative activities such as holding shares in groups;Institutional investors,especially private equity funds,often appear in the penalties for insider trading and market manipulation publicly disclosed by the China Securities Regulatory Commission.It can be seen that at present,there are still differences in professional abilities and maturity between institutional investors in China and those in mature foreign markets,and there is still controversy over whether they can have a restraining effect on the sharp rise and fall of the Chinese stock market.So,in different market environments,is there heterogeneity in the behavior of institutional investors?Does the development and growth of institutional investors have the same impact on the financial market?Against this background,this article investigates under what conditions institutional investors can play a role in promoting the healthy development of the capital market and stabilizing the stock market.We believe that due to differences in the capital market environment and regulatory rules faced,institutional investors in different types and capital markets may exhibit heterogeneity.Their behavior in the securities market and their impact on the stock market may also exhibit heterogeneity as the market environment changes.The study of institutional investor heterogeneity and its market impact in this article mainly follows the following framework.Firstly,this article reviews existing literature from four aspects:institutional investor behavior theory,empirical testing of institutional investor speculative behavior,empirical testing of institutional investor value investment behavior,and the impact of institutional investors on market stability.Then we sorted out the development history of domestic and foreign institutional investors.From the perspective of the development of American institutional investors,during the historical period of imperfect regulation and systems,American institutional investors have also experienced serious speculative and fraudulent behavior.The development of their stock market and institutional investors has been constantly reformed and improved in the midst of financial crises and scandals.On the basis of summarizing existing literature and the development history of institutional investors in reality,this article analyzes the behavioral theory of institutional investors in the stock market and its impact on market stability.We believe that institutional investors,as large investors with information and financial advantages,have investment strategies that are not solely value investing or speculative manipulation,but rather a combination of the two.Their preference for speculative manipulation strategies and value investment strategies depends on the market environment they are in.Therefore,this article constructs a mixed equilibrium game model to analyze the preference probability of institutional investors for speculative manipulation behavior in different market environments and its impact on market stability.The theoretical and model analysis of this article indicates that the nature and behavior of institutional investors exhibit heterogeneity characteristics due to changes in market environment.Based on this,we derive three inferences:(1)Unlike mature capital markets in developed countries,in immature capital markets,institutional investors may generally engage in some degree of speculative manipulation due to inadequate regulation and low investor professionalism.(2)Even in the same capital market,due to differences in legal regulations and regulatory quality,different types of institutional investors have different preferences for balancing speculative and value investment behavior,and their impact on stock price fluctuations also varies.(3)Whether and to what extent institutional investors play a stabilizing role in the stock market depends on the stage and maturity of the capital market.Only in countries with high levels of financial development and well-developed laws and regulations can institutional investors play a role of stabilizing market.Next,this article conducts empirical tests on the three inferences in the theoretical section to further validate the conclusions of this article.Among them,Chapter 5 takes Chinese institutional investors as an example to test whether there is significant speculative manipulation behavior among institutional investors in the immature capital market from the perspectives of quarter end portfolio pumping and earnings management.The results indicate that for the three types of institutional investors with a relatively large proportion in the Chinese stock market-mutual funds,social security funds,and private equity funds:From the perspective of quarter end portfolio pumping,except for private equity funds,the other two types of institutions have certain portfolio pumping behaviors,with public funds being the most significant;From the perspective of earnings management,private equity fund holdings significantly increase the company’s true earnings management behavior,which is not conducive to the company’s future development;The shareholding of mutual funds and social security funds increased the company’s positive earnings management,but this is mainly concentrated in companies with lower levels of positive earnings management.Overall,these three types of institutional investors all exhibit a certain degree of speculative manipulation behavior,which is consistent with the theoretical inference in the previous section.Chapter 6 examines the value investment behavior of various institutional investors under different regulatory rules in China and its impact on market stability from three perspectives:the relationship between institutional shareholding and future earnings of stocks,whether institutional investors promote the reflection of stock value information into stock prices,and the relationship between institutional shareholding and individual stock fluctuations.The results indicate that the three types of institutional investors with relatively high participation in China’s stock market-mutual funds,private equity funds,and social security funds-exhibit heterogeneity in their preferences for stock value information and their impact on the securities market.Relatively speaking,social security funds,which are strictly regulated,have performed well in value information discovery,improving the price efficiency of the stock market,and reducing stock price fluctuations,placing more emphasis on value investment rather than speculation.Public funds,which are less regulated,perform well in discovering value information and improving the price efficiency of the stock market,but fail to effectively reduce stock price fluctuations.Their holdings reflect both value investment and information speculation behavior.Private equity funds with loose regulations cannot reflect value pursuit,nor can they improve market information efficiency and volatility.Their professional abilities and behavioral norms need to be further improved.Chapter 7 uses macro data from various countries to compare the relationship between the development level of institutional investors and macro volatility of stocks under different regulatory quality and financial development levels.So as to test whether there are differences in the impact of institutional investors on market stability under different legal environment and financial market maturity.The results indicate that there is heterogeneity in the impact of institutional investor on macro volatility of stock prices in national capital markets with different regulatory qualities,levels of legal completeness,and levels of financial development.Overall,the regression of this article indicates that,in countries with mature financial markets,high regulatory quality,and well-developed legal systems,there is a significant negative correlation between the development level of institutional investors and stock price fluctuations.In countries with less mature financial markets,lower regulatory quality,and imperfect legal systems,there is a certain degree of positive correlation.There are significant differences between samples from different groups of countries.From the results of the empirical part,it can be seen that the empirical results of this article are consistent with the inference in the theoretical part of this article.Finally,based on the theoretical analysis and empirical results,this article proposes policy implications in conjunction with the actual situation of China’s stock market.The innovation of this article mainly lies in proposing a theoretical hypothesis about the heterogeneity of institutional investors’ behavior and their impact on market stability in different market environments,and using domestic A-share market data and foreign stock market macro data to empirically test the theoretical hypothesis of the article.In the context of the institutionalization of stock markets worldwide,this study has strong theoretical and practical significance for correctly viewing the role and function of institutional investors,and implementing targeted regulatory policies.