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| Institutional Ownership and Extreme Price Movements: Evidence from Chinese Markets |
| GAO Haoyu, YANG Xiaoguang, YE Yanyi
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Chinese Academy of Finance and Development, CUFE
Academy of Mathematics and Systems Science, CAS |
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Abstract Extreme price movements are harmful to any stock market. Does and how institutional ownership help to reduce extreme price movements? In this paper, we examine whether the institutional holdings can reduce the incidence of extreme price movements based on data sample from 2006 to 2015 of China’s stock markets. The empirical results show that, keeping other things equal, larger institutional ownership can dramatically reduce the frequency of extreme price movements, which is consistent with prior theoretical prediction that institutional ownership could play a monitoring role on the listed companies. Moreover, the mechanism is stronger for stock price crash. It is also found that the effect of institutional ownership turns to be stronger for firms with more concentrated ownership structure, more public information availability, and higher stock market volatility. The empirical results are very robust with respect to different model specifications, alternative proxies, and various robustness checks.
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Received: 12 August 2016
Published: 18 January 2018
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