Abstract: As the most important institutional investor, securities investment fund plays a vital role for the stability of the. In order to study the relation between the behavior of institutional investor and stock market, with the fund index behalf of investor sentiment, researching the time variant and deleveraging effects of institutional investor on stock market volatility by GARCH(1,1)and EGARCH(1,1) models, and analyses the conclusion based on behavioral finance. The results show that the behavior of institutional investor makes different effect on the stock market when their sentiment different. Because of the over confidence, the effect of institutional investor on stock market appears more obvious when the sentiment of institutional investor up. However, when the sentiment down,the negative effect on the stock market is less obvious than the positive effect although the stock market still fluctuates.