The Study Of Mutual Funds’ Impacts On Stock Market Stability And Its Channels

Capital market is the most important part of the financial market. It is the direct path of collecting money which connects the money supplyer and money demander. In capital market, money suppliers could find the suitable way to earn profits and money demanders could get money directly to develop construction and technology. The smooth development of capital market is most important to the financial market and economic prosperity of our country. There are two types of investors in capital market——individual investors and institutional investors. Individual investors have limited capital and information. They have no capacity to influence the capital market fluctuations persistently. However, the institutional investors have huge capital, infinite information and professional investment philosoph. They are capable to influence the capital market fluctuation.Institutional investors are one of the most important parts of capital market and the effets of institutional investors are important issues to research. Institutional investors are broad concepts including Mutual Fund, securities companies’ own funds, Social Security Fund, insurance funds and QFII. Mutual Fund originated in1987"China Real Estate Fund". After the introduction of the "interim Measures for the Administration of Mutual Fund" in1997, Mutual Fund ushered in a period of specification development. In October2000,"Fund shady event" aroused wide attention and heated discussion. In2001, government put forward the policy of "Extraordinary development of institutional investors" and Mutual Fund had embarked on a fast track of development. In2002. fund net size increased45%compared with that of2001. At the end of November2012, fund net size has reached2.562585trillion yuan and its A stock market value increased30%compared with2007. Fund increasingly highlights its status in China’s capital market. Along with the improvement of the fund’s top holdings, China’s stock market has experienced two years of strong gains from around1000points in October2007to6124pionts in October2008. However, it falls back to1665points in the following year. The increase in institutional stock ownership of Mutual Fund brought not the stock market’s stability but the ups and downs, which is contradicted with the intention of "Extraordinary development of institutional investors in order to stabilize the share prices".Does Mutual Fund of China’s capital market intensify the capital market fluctuations or promote the stabilities from academic perspective? In this thesis, we construct theoretical models and use both macro-data and micro-data to analyze the relation between the size of Mutual Fund and the stability of capital markets. Moreover, we analyze its reasons (channel) from the perspective of Securities Investment Fund behaviors. The whole idea of the paper:One is what it is and what impact it is; Two is why it is and which channel it is. Methodologically, we use Structural Vector Auto Regression Model to analyze the time series of Mutual Fund size and the Shanghai Composite volatility sequence in macro aspects. In micro aspects, we use apply Phased Dynamic Panel Model and Component Regression Model, GARCH-M model to momentum behavior and herding indicators to Herdings.Results of the empirical analysis show that China’s Mutual Funds tend to exacerbate market volatility. Mutual Funds exhibit momentum trading behavior which results in inconsistent return series features in different periods, together with the feedback trading estimate differences. Momentum trading behaviors are important channel of the fluctuation. Meanwhile, herd behaviors of Mutual Funds within a certain extent (ie. herding measure indicators are below0.8132) also play an important role in transmission. Further-more, quantiic regression model analysis show that Mutual Funds tend to reduce market volatility when the stock trait fluctuations are severe (ie. fluctuations are more serious) and the market income is positive. It supplements the overall conclusions of the lull text. The model analysis results also illustrate that the convergence of securities investment fund investment targets, the shift of public fund resources to private equity funds, and its unrestricted capability to invest lend to increase the volatility of the market.This thesis is divided into seven parts:The first chapter is the introduction part. The second chapter is literature review. The third chapter is theoretical model analysis section. The fourth chapter is empirical analysis. I he three and four chapters analyze the effects of Mutual Funds on the capital market stability theoretically and expirically. Chapters five and six are channel analysis section which analyze the channels of the Mutual Funds’effets from the herd behavior and momentum behavior perspectives. Chapter seven is conclusions and policy recommendations which conclude the whole thesis.