Institutional Investors And Securities Market Stability Research In China

The broad stock market’s stability is not only closely related to returns to investors, but also to the investor protection. The stability is very vital for it’s the basis of the healthy operation of the national financial system and economic system. After years of development, institutional investors have become a major force in the development of China’s securities market, and its behavior has an important impact on the stability of the market. Therefore, the studies about whether the behavior of institutional investors have promoted the stability of China’s securities market, influence discussion, and factors restricted the role of institutional investors have a significant theoretical and practical significance.This paper, using standard analysis and a combination of empirical research methods, systematically examines Chinese institutional investors, including the background, the type and behavior characteristics, and the impact on the stock market. And this paper clarifies the influence of the market stability caused by the institutional investors on the basis of the trading of securities investment funds and also clarifies the empirical tests of herding behavior of mutual funds and the level of positive feedback trading. In the herd behavior analysis, the paper tests the herding behavior with the LSV model and the public data for the funds. The article uses the level of individual stocks MT Momentum indicators and fully considers the momentum of the different degrees of difference stocks in the feedback testing. Finally, the paper clarifies the major factors influenced the market stability as for the Chinese institutional investors compared with the international market.In the empirical analysis, we find that the herd behavior of domestic funds are still much larger than the level of the nineties international funds which shows that the Fund’s non-rational investment behavior still exists. The test results of the positive feedback shows that there has been positive feedback trading funds, and much higher than the mature markets abroad. Fund Herding and positive feedback generate more noise and further affect the behavior of other investors which amplify the market volatility. However, the Fund’s herd behavior is gradually declining, and the positive feedback trading also stabilized which suggest the more and more rational investment behaviors and the positive direction of the market stability. Meantime, the evidence testing comes out some enlightening results after the detailed research of the different funds and stock transactions.The roles of the Chinese institutional investors to the market stability haven’t been clearly realized comparing the foreign mature markets from the empirical results. Thus, the article analyze the major factors restricted the role of institutional investors from the comparative perspective. This paper raise some recommendations and suggestions for these restricted factors.