The Impact Of Mutual Funds On The Volatility Of China's Stock Markets

In recent years, considerable studies have focused of the impact of institutional trading on the volatility of stock prices, yet whether it would increase or reduce market volatility is still a controversial issue. The empirical evidence on this issue is rather conflicting. Some studies suggest a negative contemporaneous relation between volatility and institutional trading, while, many other researches indicate the other way around.There was excessed volatility in beginning of China's stock market. In order to reduce market volatility, the authority encouraged developing institutional investors, especially mutual funds. Mutual funds have grown considerably. It draws much affention of both academics and practitioners that what kind of role have the mutual funds played. Have the mutual funds made the China's stock market more volaile, or contrarily they cove the market into a more placid manner?This paper examines the impact of the mutual funds on the volatility of stock market using the econometric models. The univariate GARCH describes volatility of mutual funds return and stock return, respectively. The Multivariate GARCH technique models the return volatility linkages between the mutual funds and he volatility of stock prices. The empirical findings suggest that the mutual funds return and the stock market return has similar univariate volatility model, because of their volatility dynamic linkages, and the relationship is asymmetric. The VAR model persents the transmission relationship among the institutional investors', individual investors'different investment behavior and the stock return volatility. The empirical evidence suggests that the investment behavior of different investors have different impacts on stock market volatility. The impact of mutual funds on the volatility of stock prices can reduce market volatility in china's stock market, but not very obviously.