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Investor Structure and Stock Price Crash Risk in a Continuous Double Auction Market: An Agent-Based Perspective

Ruwei Zhao, Xiong Xiong, Dehua Shen and Wei Zhang
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Ruwei Zhao: School of Business, Jiangnan University, Wuxi, Jiangsu 214122, P. R. China
Xiong Xiong: #x2020;College of Management and Economics, Tianjin University, Tianjin 300072, P. R. China‡China Center for Social Computing and Analytics, Tianjin University, Tianjin 300072, P. R. China
Dehua Shen: #x2020;College of Management and Economics, Tianjin University, Tianjin 300072, P. R. China‡China Center for Social Computing and Analytics, Tianjin University, Tianjin 300072, P. R. China
Wei Zhang: #x2020;College of Management and Economics, Tianjin University, Tianjin 300072, P. R. China‡China Center for Social Computing and Analytics, Tianjin University, Tianjin 300072, P. R. China

International Journal of Information Technology & Decision Making (IJITDM), 2019, vol. 18, issue 02, 695-715

Abstract: Multiple studies presume the institutional investors to be informed investors. However, some reports argue that this view is still under debate. In this paper, to avoid the informed investors proxy bias caused by the institutional investors, we construct an agent-based continuous double auction stock market model with both informed and uninformed investors and examine whether stock price crash risk can be affected by the change of investor structure. In particular, we employ four types of investor structures by gradually increasing percentage adjustments of informed investors from 20%, 40%, 60% to 80% within the market. We find that stock clear price and return show significant improved stability coming with the rising weight of informed investors. Beyond that, we recognize the situation that stock clear price falls below 95% confidence interval as crash event and count the number of the stock price crash events within each simulation of each different investor structure. We find that consistent with growing stability of stock clear price and return, stock price crash event number drops dramatically following the higher proportion of informed investors. These findings confirm our hypothesis that the involvement of informed investors contributes to the market stability.

Keywords: Investor structure; informed investors; stock price crash event; agent-based modeling; continuous double auction market (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S0219622019500081

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