The Effect of Investment on Hong Kong Listed Company

Efficient Market Hypothesis (EMH) postulates that stocks prices incorporate all past, public and private information. If EMH holds, no matter what information individuals possess, they cannot beat the market. However, the validity of EMH has always been questioned. Over the years, researchers have shown that financial markets are not as efficient as postulated by EMH. A number of studies have been devoted to examine the performances of different types of traders. Amongst all, scholars and practitioners are interested to know whether or not institutional investors are capable to out-perform the market.

Institutional investors possess significant amount of investable capital and specialized talent. They invest in securities, real estate and other investment vehicles. Amongst them are hedge funds, pension plans, insurance companies, retirement funds and money managers. Scholars and practitioners are keen to understand if institutional investors have informational advantages over individual investors. They want to know if institutional investors can consistently and persistently beat the market. They also want to understand the impact of institutional trades on market prices and returns. Furthermore, they are interested to find underlying factors capable to explain the difference between performances of institutional and individual investors.

Although many studies have examined the topic extensively, the findings are not conclusive. For example, several studies show that some institutional investors, such as: mutual funds, are capable to generate excess returns [Baik, Kang and Kim (2010), Daniel, Grinblatt, Titman and Wermers (1997) and Wermers (1999, 2000)] whereas some others document that mutual funds underperform relevant risk-adjusted benchmarks [Jensen (1968), Malkiel (1995), Gruber (1996) and Carhart (1997)].

Built upon the foundation of previous studies, this paper focuses on examining the impact of institutional trading in Hong Kong stock