An Empirical Study On The Impact Of Institutional Investor Trading Activity On The Stock Pricing Efficiency Of 300 Stocks In Shanghai And Shenzhen Stock Exchange

Since the advent of the Capital Asset Pricing Model(CAPM),many anomalies have emerged in empirical testing.Some of the anomalies have not been well explained yet.With the recent rise of behavioral economics,research on these anomalies has gradually found new breakthrough.Among them,the beta anomaly—that is,when in empirical test the relationship between the excess return and the beta risk on the Securities Market Line(SML)is flatter than that CAPM model predicts,has once again attracted attention as the research on investor heterogeneity gradually deepens.Miller(1977)and Hong and Sraer(2016)proposed the investor divergence theory under short selling restrictions to explain the flattening of the SML curve.At the same time,some scholars found that as a major force in developed markets,the behavior of institutional investors will affect the slope of the stock market line.This paper proposes four hypotheses for the impact of the Chinese market institutional investors on the stock market line and gradually verifies to explore the impact of China’s institutional investors’ trading activity on the cross-section of stock returns and provide new ideas.This article uses the daily data of the 300 constituent stocks of Shanghai and Shenzhen from 2013 to 2017 as samples,and uses the Fama-Macbeth two-step regression method to empirically analyze whether institutional investors’ trading activities in the stock market will affect the relationship between systemic risk(beta coefficient)and excess returns,that is,the micro-action mechanism on the cross-section of stock returns.The results of the study found that the trading behavior of institutional investors has a significant impact on the slope of the SML curve.The high activity of institutional investors promotes the positive slope of the SML curve and improves the efficiency of asset pricing.However,when the activity is low,the slope of the SML curve is negative.Neither the stock market crash in 2015 nor the January effect have effect on the regression results of this article.This paper further proves that the investor divergence theory under short selling restrictions(instead of Frazzini and Pedersen’s financing constraint theory(2014))has a certain degree of explanation for the findings of this article,which provides theoretical support for the necessity of China’s vigorous development of institutional investors.It also provides more reliable empirical evidence for further deepening financial innovation reform.