The Study For The Influence Of Hedge Funds On A Share Market

From the1637Tulip mania to the2011European debt crisis, there have been more than tentimes of global financial crisis. In every crisis, there are always special investment entities involvedin security market. Financial crisis have few shock on them, they make great profits by usingfinancial derivatives and complicated strategies. They are more like lubricant in financial market,because they sell when assets are overvalued, and buy when assets are undervalued. These specialinvestment entities are hedge funds.Early2010, China opened stock index futures and margin trading, which are considered as themost important hedging instruments of securities market, the opening laid the foundation fordeveloping hedge funds industry in China. More and more global hedge funds and foreigninvestment companies are entering the Chinese market by different ways, and private securitiesfunds which are regarded as Chinese hedge funds are also growing up. But the problem is faced byregulators that how China develops hedge funds industry without experience.U.S. asset management industry is the biggest in the world. Its financial engineering industry isalso the leader of global financial innovation. U.S. financial sectors believe in the principle offinancial freedom, non-monetary controls provide foundation of the largest capital for U.S. financialmarket, in2010, the total size of global asset management industry is$83.6trillion withoutsovereign wealth fund and ETF, the U.S. accounted for45%. Global hedge funds is2.1%out of$83.6trillion, U.S. accounted for68%. Therefore, the United States is the largest country of theglobal wealth management, most hedge funds around the world gathered in the United States. Thispaper will analyze U.S. hedge funds return、risk、regulation, as well as China’ s hedge funds, inorder to test hedge funds’ shock on A stock market. Because China currently opened margin tradingand index futures, which are mainly used by the L/S equity strategy and index future strategy,therefore, this paper will fit time series of these two hedge tools to empirical model, so as to testshock effect on A stock market of the L/S hedge funds and the index future hedge funds. Thepurpose of study is for reader to understand value and significance of developing hedge funds, thepaper’s result could make regulators to understand hedge funds are positive for China’s assetmanagement industry and security market. At the same time, this paper will give suggestions forregulator how to develop hedge funds and financial derivatives.This paper will test the shock effect on A stock market of margin trading by fitting of VAR andVEC model, and examine its relationship with market by using Granger causality test、impulseresponse function and variance decomposition. Also, I will examine the volatility of the stock indexfutures through the establishment of the ARCH model、GARCH model and its extended model. This paper argues that the L/S equity hedge funds and the index future hedge funds withhedging instruments do not cause the unusual fluctuations in the market, but ease market volatility.Therefore, government should gradually deregulate the eligibility of short-selling for small boardand GEM on the basis of short-selling of blue-ship stocks, and make all A shares companiesinvolved in margin trading business. This can delist those poor performed companies by marketforce, so that protect the interests of investors. Furthermore, government should gradually introduceU.S. hedge funds entering into Chinese market to participate in the competition. This will not onlyenhance the competitiveness of China’s hedge fund industry, but also can lead the capital flows ofshadow banks into securities market, whose functions of investing and financing platform will bemore effective, so as to achieve big progress of China’s asset management industry.