Who exacerbates the extreme swings in the Chinese stock market?
37 Pages Posted: 21 Aug 2015 Last revised: 8 Sep 2017
Date Written: September 6, 2017
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: Suggested Citation