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Institutional trading in volatile markets: Evidence from Chinese stock markets

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  • Darby, Julia
  • Zhang, Hai
  • Zhang, Jinkai

Abstract

We investigate the daily stock returns of all A-shares listed on the Shanghai and Shenzhen stock exchanges over the period 2010–2017. Using daily cash flow data on the largest category of trades by value, we construct a proxy for high-value institutional trading activity. We demonstrate that high-value institutional transactions consistently exacerbate firm-level abnormal stock returns on extreme market movement days. We then highlight the conflating influence of regulator imposed daily limits on firm-level stock price movements and conclude that binding price limits act to exacerbate the destabilizing effects associated with high-value institutional trades in Chinese stock markets.

Suggested Citation

  • Darby, Julia & Zhang, Hai & Zhang, Jinkai, 2021. "Institutional trading in volatile markets: Evidence from Chinese stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:pacfin:v:65:y:2021:i:c:s0927538x2030696x
    DOI: 10.1016/j.pacfin.2020.101484
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    Cited by:

    1. Jansen, Maarten & Swinkels, Laurens & Zhou, Weili, 2021. "Anomalies in the China A-share market," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Extreme market swings; Price limits; Cash flow; Institutional trading behaviour;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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