Impact Of Fund Size On Fund Performance, Behavior And Market Stability

Since 2005, China's funds have developed by leaps and bounds, some of larger funds occurred continually. Now the funds play a dominate role in the capital markets. The large funds have drawn general attention of investors and fund managers. But with the increase of the fund size, has the performance of the funds investors concerned about improved? Have the functions of rational investment and market stabilization the government care about complemented? By the data of active partial stock open-end funds from Jan 2005 to Dec 2010, this paper analyses the impact of the size on the fund performance,behavior and market. The funds have been divided into five categories according to the fund net and the rate of return has adjusted in various ways. The results show that:the larger funds earn higher historical returns, while the medium-sized funds earn higher future proceeds, that is to say, as fund size increase, the fund's incomes increase firstly and then begin to decrease. the larger-scale funds enhance the stock—choosing capacity,but the ability of market—timing raises first and then descends as the size increase. The empirical results show that in the bull market the large-scale fund appears higher herding behavior because of the buying herding behavior, but in the bear market, the small-scale fund appears higher herding behavior owing to both the buying and selling herding behavior. There is a higher positive feedback trading strategy on the funds especially on the large-scale funds, that is, the large-scale funds are more likely to buy the stocks which have better past returns. Finally, this paper adopts TARCH to analyze that the function of stabilizing markets has been enhanced with the development of the active partial stock open-end funds.