Author(s)

NiJia Gu^*, JiaNing Lu, Cong Chen

Affiliation(s)

School of Finance and Economics, Jiangsu University, Zhenjiang 212013, Jiangsu, China.

Corresponding Author

NiJia Gu

ABSTRACT

This paper investigates the relationship between investment style preference switching among Chinese institutional investors and stock returns. Against the backdrop of China’s emerging and imperfect stock market, institutional investors—often assumed to be rational—exhibit significant behavioral biases and irrational tendencies, such as short-term speculation and style-driven trading. By categorizing stocks into extreme style pairs (e.g., large-cap vs. small-cap, value vs. growth, winner vs. loser portfolios), the study analyzes institutional holdings and style-switching behaviors using quantitative models. The results indicate that institutional investors frequently engage in style preference switching driven by past returns and macroeconomic factors, which in turn significantly affects stock price volatility and market stability. The findings suggest that such behavior often amplifies market fluctuations and contradicts the expected role of institutional investors as market stabilizers. Accordingly, the paper proposes policy recommendations aimed at improving internal governance, enhancing transparency, and strengthening regulatory guidance to promote long-term value investing and mitigate irrational market impacts.

KEYWORDS

Institutional investors; Investor style; Stock returns

CITE THIS PAPER

NiJia Gu, JiaNing Lu, Cong Chen. The style preference switching of Chinese institutional investors and stock returns. Journal of Trends in Financial and Economics. 2025, 2(4): 1-5. DOI: https://doi.org/10.61784/jtfe3059.

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