Who exacerbates the extreme swings in the Chinese stock market?

37 Pages Posted: 21 Aug 2015 Last revised: 8 Sep 2017

See all articles by Shu Tian

Shu Tian

Asian Development Bank

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Qiongbing Wu

Western Sydney University

Date Written: September 6, 2017

Abstract

We investigate who are the investors that buy or sell more on the days when the absolute value of market returns or the daily range of market index prices exceeds 5% in the Chinese stock market. Unlike Dennis and Strickland (2002) who find that institutional investors are buying (selling) more when there is a large market increase (decline) in U.S. equity markets, we find that institutional investors in China are systematically buying more than the less sophisticated individual investors during extreme market swings, particularly on extreme market-down days. We also find little evidence that institutional investors overreact to extreme market swings; instead, we find strong evidence that institutional investors, primarily pension funds, provide a stabilizing influence during market downturn days. The findings support the importance of institutional investors in an extremely volatile emerging market dominated by individual investors.

Keywords: institutional ownership, institutional trade, abnormal returns, extreme market swing

JEL Classification: G11, G12, G14

Suggested Citation

Tian, Shu and Wu, Eliza and Wu, Qiongbing, Who exacerbates the extreme swings in the Chinese stock market? (September 6, 2017). 28th Australasian Finance and Banking Conference. Available at SSRN: https://ssrn.com/abstract=2648227 or http://dx.doi.org/10.2139/ssrn.2648227

Shu Tian

Asian Development Bank

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Manila, Metro Manila 1550
Philippines
63-2-6324915 (Phone)

Eliza Wu

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Qiongbing Wu (Contact Author)

Western Sydney University ( email )

Locked Bag 1797
Penrith South DC, NSW 2751
Australia
+61-2-96859805 (Phone)
+61-2-96859105 (Fax)

HOME PAGE: http://www.uws.edu.au/staff_profiles/uws_profiles/doctor_linda_wu

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