The Trading Behavior Of The Securities Investment Fund And Its Impact On The Market

It has been a disputed problem that whether the trading of the investment fund industry can induce the the violent fluctuation of stock prices or not for a long time. Generally speaking, the debate about the function to stabilize stock market for the investment fund industry mainly concentrates on three aspects: (l)The impact of liquidity stress on stock prices.When the institution investors buy or sell some stocks together for a certain reason, the trade pressure may exceed the liquidity that the market can provide. This will lead the stock prices discontinuity and the Cascade Effect, and further destroy the stabilization of the market. (2) The impact of herding on stock prices. When the investors in stock market undertake the one-sided trading on some stocks, the herding will appear. It will drive the stock prices to depart from or approach to its inherent value, and also can induce the price overreaction, the market collapse and speculative bubble. (3) The impact of momentum strategy. Momentum strategy is a typical form of short-term strategy, and this strategy mainly takes the past return as the judgement criterion. It includes two forms: positive-feedback strategy and negative-feedback strategy. Usually the positive-feedback strategy will destabilize the market, otherwise the negative-feedback strategy will speed the absorption of infromation by stock prices and wili stabilize the market.Because the datas are not very sufficent, this article mainly investigates the impact of herding and positive-feedback trading on stock prices. Six parts are included in this paper altogether. First, the research background and methods are introduced. Second, previous researches and comments are summarized on the function to stabilize stock market for the investment fund industry. Third, the herding and its impact on stock prices are investigated by econometric models and the reason are analysed at the same time. Fourth, the feedback strategy and its impact on stock prices are investigated by econometric models and the reason are analysed in the meantime. Fifth, institutional analysis is conducted and we think thatinstitutional restirction is the mainly reason for the destabilization induced by the investment fund industry trading. Sixth, summarize the previous discussions and brief and suggestions are finally proposed.By computation and analysis we draw conclusions as follows: (1) Strong evidence of herding behavior and positive-feedback trading for Chinese security investment funds are found and the level of herding is 3 to 4 times stronger than the herding found for institutional investors in mature markets. (2) There seems to be a stronger tendency to herd in trading of smallest scale stocks and during selling stocks. It also seems that there is a stonger tendency to herd if the assets or the investment decentralization degree of investment funds are larger. (3) Herding of investment funds induce the violent fluctuation of stock prices on the whole and destabilize stock prices, but further analysis we find that the sell herding speeds the absorption of new information by stock prices and the buy herding destabilize stock prices indeed. (4)The investment funds follow the typical positive-feedback strategy on the whole, but the smallest scale stocks didn't show the notable positive-feedback strategy. (5) The positive-feedback strategy of investment funds on the whole destabilize stock prices, but further analysis wefind that the net sales ( VratiOi,t<0) only induce the temporal stock prices fluction, whereas didn't destabilize the long-term stock prices and speed the absorption of new information by stock prices. Otherwise the net buys( Vratioi.t>0) not only induce the temporal stock price fluction but also destabilize the long-term stock prices.