A Research Into The Impact Of Funds’ Behaviors On Liquidity Of Stock Market

After20years of development, China’s capital market has achieved a remarkable result, becoming the world’s second-largest capital markets. Along with the development of capital markets, securities investment funds are also increasingly expanding. Until June2011, the number of China’s securities investment funds has been developed from51in2001to809, the net assets of82.1billion development to2.36trillion, the fund management development by34to65.The fund has played a pivotal role in the enhancement of the overall quality of the capital market. But the trading behavior of the fund itself, referring to irrational investment, herd behavior and so on, has made negative influence on the development of the capital market. Many scholars pay attention to this field, but more is to investigate the impact of non-rational behavior on stock prices and volatility, few scholars study the impact on liquidity, so this paper focus on the relationship of fund behavior and the liquidity.The first part of this paper is about the theoretical and practical backgrounds. Relevant literature at home and abroad are classified, Fund’s investment behavior and stock market liquidity in china, I make conclusion about the existence of herd behavior and inertial behavior. Meanwhile, the statistics show that the liquidity level of China’s stock market liquidity has been completely meet the trading needs of institutional investors and small investors.Chapter4is base on empirical test. The fund’s investment behavior can be attributed to the buying&selling behavior and holding positions respectively, this paper introduces two indicators:a net change of fund positions and trading volume weight. The correlation of fund behavior and liquidity of the stock market is closely related to these two indicators from a micro-perspective.The empirical test contains multiple regression equation, VAR model, and Impulse response test and they are logically related. The first part shows the existence of correlation of the liquidity and trading volume weight, but the net change of the holding position’ influence on liquidity is not significant. Granger causality test is added in second part. The results in bull and bear market are different. Impulse response test is aimed to explain the extent of influence. The statistics shows two indicators discussed above make different contribution to liquidity of different market. Based on discussion above, I make conclusion that the development of fund indeed make effort, but irrational investment behavior disrupts the market order.