Did Institutional Investors’ Behavior Affect U.S.-China Equity Market Sentiment? Evidence from the U.S.-China Trade Turbulence

Shu-Ling Lin and Jun Lu
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Shu-Ling Lin: Department of Information and Finance Management, College of Management, National Taipei University of Technology, Taipei 10608, Taiwan
Jun Lu: College of Management, National Taipei University of Technology, Taipei 10608, Taiwan

Mathematics, 2020, vol. 8, issue 6, 1-17

Abstract: In the current situation of U.S.-China trade turbulence, this study focuses on quarterly panel data from May 2016 to September 2019 in order to verify the effectiveness of feedback trading strategy and smart money theory in stabilizing U.S.-China securities markets and to understand the role of institutional investors’ behavior, to come up with suggestions for improving and perfecting the market mechanism in stabilizing the U.S.-China securities markets. In this study, we adopt the generalized method of moments (GMM) to perform dynamic panel data analysis and discuss the changes in professional institutional investors’ behavior and equity market sentiment in the U.S. and China during the trade turbulence, and then analyze whether that behavior will suppress local stock market sentiment. Through empirical research, we found that institutional investors on both sides of the trade turbulence have a different impact on the stability of the local securities market. The behavior of institutional investors in the United States has played a role in stabilizing equity market sentiment in accordance with feedback trading strategy and smart money theory. However, the behavior of institutional investors in China is the opposite.

Keywords: U.S.-China trade turbulence; institutional investors; equity market sentiment; feedback trading strategy; smart money theory; dynamic panel data analysis (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
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