Research On Change Of The Securities Investment Funds' Stock-holding Preference And The Impact On Stock Market

In China, the securities investment funds have been developing swiftly since 1991, and have become the very important player in the stock market in recent years, which attracts domestic scholars' attention. They have made a lot of empirical research on the stock-holding preference of the securities investment funds and the impact of their stock-holding on the stock market. However, none of them ever touched such fields as whether the stock-holding preference of the securities investment funds has changed and what are the effects of such change on the stock market if it did. This paper will make a research in this field.Firstly, the paper analyzes the characteristics of the stock-holding of the securities investment funds. It finds that the stocks' volatility and liquidity as well as the prudent rule of the funds' investment have effects on the stock-holding preference. Therefore, this paper selects some indicators measuring such characteristics. At the same time, taking into account the particularity of the stock market in China, the author adds the proportion of the state-owned shares and the free-float ratio accordingly. Taking the data from the second quarter in 1998 to the third quarter in 2007 as the research sample, and regressing the stock-holding ratios to the above indicators, the author finds that the securities investment funds in China generally prefer the stocks with higher volatility and liquidity, but are less constrained by the prudent rule. Secondly, in order to test whether the stock-holding preference of the securities investment funds has changed, this paper separates the sample period into two sub-periods and then compares and contrasts the respective stock-holding preference. It finds that stock-holding preference of the securities investment funds did change. In the first sub-period, the securities investment funds preferred holding the stocks with higher market risk, lower market capitalization and lower free-float ratio, but it was wholly opposite in the second sub-period. Thirdly, this paper empirically analyzes the effects of stock-holding of the securities investment funds and its preference change on the stock market. The results show that the securities investment funds have not enhanced the liquidity and stability of the market, and the preference change has led to lower turnover rate, higher volatility and P/B ratio of the large companies' shares, comparing to the small companies. Finally, according to the empirical results, this paper puts forward a series of policy suggestions such as actively cultivating the institutional invertors, setting up scientific investment performance evaluation standards, improving the fundamentals and disclosure of the listed companies and rationally planning the developing pace of the investment funds.