The Stock Market

Abstract

In the stock market, as the institutional owners, they always rebalance their stock portfolio by increasing or decreasing the ownerships. In this assignment, I would examine some reasons why they change their ownerships. For this purpose, I pick up two reasons to do the future analysis, one is the 9-month average monthly return, and the other is the market value of the company one year before. I want to examine whether these two factors would influence the institutional ownerships.

Introduction

In this study, we examine what the factors would influence the change of the institutional ownerships. In the stock, usually there are two types of the investors. One is the individual investor and the other one is the institutional investor. In the stock market, the trend of institutional investors is always important. It always means some professional advice of the future trend of the market. For example, from 1987 to 1990, the institutional ownership continuously decreased for PEMNO 10001 which is Energy Inc. During that period, the investors always got the negative return of this stock. If the institutional ownership decreases substantially at one time, it is mostly that the company would face some problems and will decrease in the future.

Hypotheses Development

Our task is to find what factors would influence the change of the institutional ownership. In my assumption, I find two factors. One is the market value of the company, and the other one is the past average monthly return.

For the market value, I assume that due to the operation in each year, the company would have different performance. Institution would analyze the accounting statement to reevaluate the company. If they think the company would have a negative future, they may decrease their ownerships. In my assumption, I define that market value as price* shares outstanding.

The second factor I assume is the past average monthly return. I think in a specific period, the institution would check the past return of each stock. If they find that they don't get a good return on some specific stock, they may consider about reducing their ownerships to change to another one they think they would get a better return. For this factor, I assume to use past 9-month average return to do the regression.

Data and Methodology

Because the institutional ownership would be largely different in each company, which couldn't be explained reasonably by monthly return or market value, to solve this problem, I use the percentage change of institutional ownership in each three months to replace the amount of institutional ownerships.

Using the formula:

(Current instituional ownership-three months ago institutional ownership)/(Three