Institutional Investors On The Capital Markets And Institutional Investors In China To Cultivate Research

China′s capital market got an unconventional development in the last decade. Thescale level have been improved obviously. But high-speed development also brings usmany problems, such as high price-volatility and low market efficiency. The bestmethod to solve these problems is to adjust the structure of investors, that is to developdomestic institutional investors. In the first part, this paper assesses implications for capital markets, addressingamong other things the issue as to whether growth of institutional investors maydirectly or indirectly lead to financial volatility. Institutional investors development hashad a major impact on capital market size and innovation. Institutionalization by thisroute makes a contribution to the broader efficiency of the economy by ensuring thatthe functions of the financial system are carried out in an effective manner, and that iswhat we seek in China. An increase in average capital market volatility is not detectablewith institutionalization;indeed, there is evidence of increased market efficiency. Theirdevelopment should help to improve financial stability and market liquidity. On thebasis of analyzing foreign and domestic institutional investors, we get someimplications to China capital market, and make a conclusion that the development ofinstitutional investors should have more positive impact on the capital market. With consideration of the reality in China, we analyze the development of Chinainstitutional investors. We find that China mutual funds have more inclinations ofherding behavior. The social insurance funds focus on too narrowly defined capitalassets, and hence get a much lower rate of return. Insurance funds invest heavily onthe bank deposits and national debts for a long time, and there is some disequilibriumfor the funds operation. QFII has not yet lead to mature domestic mutual funds ,and itsquota are looking forward to be enhanced for a further step in the near future. At last,this paper put forward some suggestions to develop domestic institutional investors:dispersing the structure of institutional investors;establish legal financing channel forinstitutional investors;develop more derivative financial instruments to hedge risks incapital market. There are also two innovations in this paper: clarifying the transferring mechanismbetween volatility and liquidity in capital market by institutional investors;analyzingindirect trading cost that institutional investors are more concerned about.