Stock Market Liberalization and Institutional Investor Clique Behavior: Evidence from China
Keywords:
stock market liberalization, domestic institutional investors, clique behavior, hotspot clustering, value clusteringAbstract
This study examines how stock market liberalization affects the clique behavior of domestic institutional investors, distinguishing hotspot clustering from value clustering. Using panel data on Chinese listed firms from 2011 to 2019 and a difference-in-differences design, we identify institutional cliques with the Louvain community detection algorithm, and we apply large language models to cross-validate clique measurement and to construct a cross-border thematic similarity index. We find that stock market liberalization significantly reduces hotspot clustering while promoting value clustering. The inhibitory effect on hotspot clustering is more pronounced for speculative stocks, whereas the promotion of value clustering is stronger among industry leaders. These effects operate through improved market efficiency, optimized institutional holding structures, and enhanced cross-border narrative alignment. Institutions that prioritize fundamental analysis achieve superior investment returns. This study advances research on institutional cliques by integrating large language models into clique measurement and identifies a channel through which foreign investors mitigate short-term speculation in emerging liberalizing markets.
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