This paper takes the semi-annual stock portfolio disclosed by all equity funds and hybrid funds from 2012 to 2023 as the research object to investigate the long-term shareholding characteristics and mechanism of institutional investors. The results show that: (1) Long-term shareholding by institutional investors has low performance sensitivity, low stock price synchronization and positive correlation with future earnings. (2) In the down stage during the abnormal volatility of the stock market, the shareholding period of investors is inversely proportional to the decline in stock price, that is, the longer the shareholding period of institutional investors (the smaller the turnover rate), the more the decline in stock price can be alleviated. This shows that long-term shareholding by institutional investors can significantly stabilize the financial market. In the rebound stage, the shareholding period of institutional investors is directly proportional to the rebound of stock price. The longer the shareholding period of institutional investors (the smaller the turnover rate), the more it can promote the rebound of stock price, and thus promote the return of corporate value. (3) The mechanism of long-term financial stability by institutional investors lies in the effective relief of market selling pressure. Further research shows that long-term shareholding by institutional investors can reduce financial market volatility; Fund managers with rich investment experience can help institutional investors to adopt long-term shareholding behavior, which has certain policy significance for promoting long-term shareholding of institutional investors.