An Empirical Study Of The Effects Of Securities Funds On The Stability Of The Stock Market Of China

This article, on the basis of a retrospective summary of the theoretical analyses and empirical studies that have been conducted in recent years, attempts to make an in-depth empirical study on the characteristics of the securities fund investment behaviors in the stock market of China, and their effects to the stock market. By doing this I hope to draw some useful conclusions and to provide some proposals for the regulatory body to base their relevant policies upon. This article is focused on the study of the effects of the investment behaviors to the stability of the stock market, in the hope of making a judgment as to if these effects are in line with the overall direction designed for our country to promote the development of institutional investors. Efforts are also made to grasp the underlying reasons behind the current conditions, which can hopefully be used as a reference when follow-up policies are developed.Investment behaviors such as synchronized loading and unloading of bulk-holding stocks are addressed with an emphasis in this article, and indices such as concentration ratio of bulk-holding stocks and turn-over ratio of stocks held by funds are applied to put these stocks in comparison with the Shanghai A-Share Index, in an effort to analyze the effects of the investment behaviors of the funds to market stability. My study has found the effects of the fund investment behaviors to the stability of the stock market have shown different patterns in different phases, i. e. in the first years of the securities funds are involved in the stock market, fund investment behaviors had had no substantial influence to the market for most of the time, but in certain periods of time they had been the cause of increased irregular market volatility; while starting from the year 2003, the funds have demonstrated obvious direction-setting effects to the stock market, and functioned to a reasonable extent as a stabilizer of the overall stock market. I believe the underlying reasons include the state of the securities fund of our country being in its primitive stage, severe institutional defects of our stock market, the bandwagon effect still playing an important role, and the lack of a clarified system of internal value measuring standards.Based on the findings of our study, we conclude that in order to ensure the proper functioning of the securities funds to help stabilize the stock market, firstly we need to strengthen the base of the stock market by finding solutions for legacy problems such as state-held stocks, and introducing hedging instruments such as stock futures and stock options; secondly we need to design and adopt measures to ensure diversification of the fund types; lastly we need to further enhance regulation in requiring publicly traded companies to expand information disclosure so that indices such as the turn-over ratio of fund-dominated stocks are included. In addition, the construction of a rating system for securities investment funds needs to be sped up, and ratings should be used as a major factor in monitoring fund activities. We believe these measures would help the securities funds to exert positive influences to an ideal extent to the stock market.