An Empirical Study About The Impact Of The Development Of The Open-End Funds On The Chinese Stock Market Volatility

Stock market volatility is inherent,so it is inevitable,and the normal price volatility is the prerequisite for the existence and development of the stock market,but if the stock price volatility is too large,speculative atmosphere is too dense,it would severely disrupt the stock price as a function of the market indicator,and undermine the rational allocation of resources.When China began to introduce open-end fund in 2001,it was under the consideration that a market dominated by individual investors would make the market unduly volatile,not conducive to the long-term stability of the stock market.And this retail investor's structure had been considered to be the main reason for Chinese stock market volatile and inefficiency.In such context,the government hoped to employ an appropriate and flexible framework,i.e.,the introduction of open-end fund,to realize such objectives as protecting investors,ensuring market integrity and reducing systematic risks,and other regulatory objectives. This was introduced as an important policy for Chinese stock market. After several years of development,Open-end funds have become the largest institutional investors of Chinese capital market,the influence on the stock market become more and more obvious.As a highly professionalized investment method on a commission basis,open-end fund is bound to affect the stock market profoundly in such ways as changing the incremental money,product innovation and investment strategies in the market.Six years later,however,there is still little empirical study about the impact of open-end fund on the stock market, especially whether it successfully stabilized the market by reducing market volatility.In basis of previous Chinese and foreign scholars' study on the topics,Focus on theoretical analysis of "Herding Behavior","feedback trading" strategies,and the impact on the stock market stability.This dissertation attempts to use the parametric method to conduct an empirical study about the impact of open-end fund on the Chinese stock market.The paper used GARCH-M(1,1) and EGARCH-M(1,1) models to conduct statistical analysis and data fitting of all workday data of Shanghai Composite Index and Shenzhen Composite Index.With the introduction of open-end fund as a dividing line,it compared the variations of stock market volatility and evaluated whether the volatility structure of the stock market has changed.Thus evaluating whether the introduction of open-end fund has considerably influenced the stock market.The conclusions of this empirical study are as the following:the introduction of open-end fund has served to stabilize the Chinese stock market and reduce the volatility therein.There is a notable leverage effect in Chinese stock market,i.e.,negative messages produce a bigger impact on stock market volatility than positive messages.However,the introduction of open-end fund somewhat reduced this leverage effect, abated the stock market volatility to a certain extent,and helped change the irrational behavior of "chasing the rising prices while closing out on the falling prices",thus stabilizing the stock market.The conclusions of this paper also consider that there are still a lot of problems on our open-end fund development.This is probably because,on the one hand, the capital market is still not yet fully developed:Systemic risk factors excessive interference,the quality of listed companies is worse, singleness of investment varieties,the lack of hedging mechanisms.The government's intent to drive and macro-control the stock market has a strong effect on the behavior of investors.As a result of the unpredictability of governmental policy,individual investors developed a "policy-dependent deviation".On the other hand,it's related to the open-end fund's own governance structure defects.Generally speaking,from the perspective of policy-makers, Comprehensive development of institutional investors should continue to be the policy direction.