Analysis Of Relation Between Investments Funds And Fluctuation Of Stock Prices

From November 1997, institutional investors, especially open-ended funds, have grown rapidly with the support of the government's policies. The goal of these policies that promoted the supernormal growth of institutional investors is to help stabilizing stock prices and reducing speculations in the stock market with their matured investment philosophies. This paper adopts the method of empirical study to analyze the data from June 2004 to September 2007 of 40 A-share stocks which were heavily held by open-ended funds. Different from other studies, the object of this article is the relation between the invest behavior of investment funds and the fluctuation of individual stock price. With the computation of standard deviation, positive deviation and negative deviation of stock price, the model here is more idiographic, and through this we can get more authentic results. The result of this study shows that the invest action of the funds can cause abnormal fluctuation of the stock price but the influence is asymmetry. It means that when the stock price is rising, the behavior of investment fund promotes the stock price higher and higher, but when the stock price is going down, the behavior of investment fund can slow the falling trend. By analysis, I summarize the reasons to this result. Firstly, the gain approach in our market is single, so the investor can not realize perfect portfolio. Secondly, investment funds itself has some features that can increase the fluctuation of stock price. The system of purchase and redeem of open funds can transmit the blindness of smaller investors to the funds. And the principal-agent problem also lead the funds to make illogical invest decisions. In addition, the invest ideas of our countries' funds are similar to each other. Thirdly, the quality of the listed companies needs to be improved. There are many problems in corporate governance and the protection of the interests of smaller shareholders. Fourthly, the structure of institutional investors is not balanceable. During these years, only the scale of open-ended funds increased quickly, other institutional investors, like pension funds, insurance funds and close-ended funds were not scale-up evenly. At last, the asymmetry of the influence is mostly because most of these stocks are blue chips; when the price is going down, the institutional investors may not want to abandon them for there are no other high quality stocks in the market. Instead they may think the buying opportunity is coming and increase their long position. By analyzing the reasons, this paper set forth the policies which includes presenting short sale mechanism as soon as possible, balancing the development of institutional investors, strengthening the role of institutional investors in corporate governance and spreading rational invest philosophy to make the fluctuation of stock price return to rationalities.