Institutional investors' effects on Stock Price Synchronicities: Evidence of Shanghai Stock Exchange

The tendency of stock prices always attracts investors’ attention, which is related to their earnings. So it is increasingly concerned that what information will affect the stock markets and how the stock market reacts to investors’ investment strategy. So this paper investigates the phenomenon of stock price synchronicity in Shanghai Stock Exchange, and what reflects stock price synchronicity in terms of firm-specific information and institutional investors’ characteristics. We use the proxy of stock price synchronicity: R-square statistic is decreasing within the time period, as which reflects the maturity procedure of the China’s equity market. Based on stock market information and institutional specific information from 2007 to 2012, we find a significantly negative relation between stock price synchronicity and institutional investors’ shareholdings, and domestic institutional investors have larger effects than foreign institutional investors because of the easy access to firm-specific information. Moreover, the inner associated relation between firm-specific information and institutional investors’ characteristics is explored.