Institutional investors, firm-specific information and the synchronicity of stock price variation:: A R2-based perspective

The synchronicity of return variation means that stock prices move in the same direction together, which implies that firm-specific information is not fully capitalized into stock prices. This phenomenon not only does harm to the economic role of prices that serve as signals, but also weakens diversification effects of the risk of portfolio. Based on a panel data of Chinese listed firms during 2001-2005, this paper applies fining coefficient of CAPM to measure the synchronicity, and empirically tests the relation between institutional investors and the synchronicity of stock price variation from mean effect and increment effect separately. The results show that the institutional investors help to increase the information content of stock prices and restrain the synchronicity greatly as a result which means that the rational degree of security market has been promoted and the effect of portfolio on minimizing risk has been strengthened.