Who exacerbates the extreme swings in the Chinese stock market? |
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| Institution: | 1. Economic Research and Regional Cooperation Department, Asian Development Bank, Metro Manila 1550, Philippines;2. University of Sydney Business School, University of Sydney, Camperdown, NSW 2006, Australia;3. School of Business, Western Sydney University, Parramatta, NSW 2150, Australia;1. University of Nottingham Ningbo, China;2. Southwestern University of Finance and Economics, China;3. University of Nottingham Ningbo China, Taikang East Road, Yinzhou, Ningbo, China;1. University of Edinburgh, United Kingdom;2. Fondazione European Capital Markets Cooperative Research Centre (ECMCRC), Pescara, Italy;1. Business School, Central South University, China;2. College of Business, Stony Brook University, United States;3. School of Business, Nanjing University of Information Science and Technology, China;1. College of Business Administration, University of Akron, Akron, OH 44325, USA;2. Management School, Chatham Building, University of Liverpool, Liverpool, L69 7ZH, UK |
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| Abstract: | We investigate which investors buy or sell relatively 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 Journal of Finance 57(5): 1923–1949 (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 reveal that institutional investors in China (primarily pension funds), provide a stabilizing influence during market downturn days. Our findings highlight the benefits of having active institutional investors in an extremely volatile emerging market dominated by less sophisticated individual investors. |
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