Experimental Study On Fire Sales And Liquidity Risk Contagion Based On Open-ended Equity Funds Liquidity Shocks

With the rapid development of China's securities market,fund assets accounted for the proportion of the market value of the securities market is growing.Securities investment funds have become one of the important market investors in China.Securities investment funds in the acquisition of investment income at the same time,naturally also face a variety of risks.In all the risks faced by the securities investment fund,the liquidity risk of the fund,especially the open-ended fund,is the first to bear the brunt of liquidity risk.Liquidity shocks are highly uncertain and contagious,as Shleifer and Vishny(2011)say:The 2007-2009 Financial Crisis,which began with a debt default,from the actual evolution process,ithas become a liquidity crisis rather than a debt crisis.The impact of liquidity risk on financial institutions and the financial system is fully manifest in the US subprime mortgage crisis.Due to the existence of "redemption puzzles" and the "limited rationality" of fund investors in China's open-end funds,China's open-end funds face greater liquidity risk than foreign mature markets."Herd behavior" by fund managers and investment institutions imbalance led to the fund portfolio associated.And then because of the inter-fund asset connection and when the liquidity shocks occur the fund to take concerted action to sell the assets isthe main channels and mechanisms to lead and accelerate the risk of contagion.At present,the research on the liquidity risk of open-end fund is mainly focused on the causes,measures and management of liquidity risk.It is not common for open-end fund liquidity risk contagion.In recent years,scholars pay more attention to liquidity risk indirect contagion channels,that is,by the fire sales caused by liquidity risk contagion,the stock market is the main channel for this indirect contagion.When the fund suffered a liquidity shocks,in a short period of time only through the sale of shares to get liquidity,liquidity risk transferred to the stock market,when there is a link between the funds,resulting in fire saless,and further promote the stock price decline.Causing the stock price to spiral down.Under the above-mentioned channels and mechanisms,relatively small shocks may also cause rapid liquidity depletion,and may lead to systemic financial crisis.Based on the study of fire saless and liquidity risk contagion,this paper constructs thereal market environment that fund market after liquidity shocks(redemption)through the sale of assets to deal with the liquidity shocks in the laboratory.By experimenting with individuals who are affected by liquidity,how to transfer liquidity risk to other individuals through fire saless,and then how to change the price curve of asset discounts at a given degree and structure shock and how the subjects are expected and coordination.The experimental results show that the shape of the fire saless curve depends on the structure and scale of the liquidity shocks and the coordination among the market participants.Participants in the experiment showed good adaptive learning behavior.By changing the subjects'expectations,it can increase the coordination between the subjects and thus can effectively block the liquidity risk of contagion.Empirical research on the existence of fire sales in China's Stock Market.The study finds that there are fire sales in China's stock market.Domestic open-end funds there is a more serious "herd behavior",investment idea convergence and investment style fuzzy makes the overlap of assets increases between funds increased,which has led some funds to influence funds that hold the same assets when they sell their shares.And thenthefundheld the same assets will be suffer from redemption,the formation of"redemption-sell stocks-stocks price decline-redemption expanded-to sell the stock" positive feedback effect further makes the stock price deviation from the basic value of the formation of stock fire sales,exacerbate market volatility,extreme cases cause trigger systemic risk.This paper uses the experimental economics research tool to study the fire saless and liquidity risk contagion for fire saless and liquidity risk contagion research to provide a new method of reference.At present,the problem of fire saless and liquidity risk contagion is still based on theoretical analysis and empirical test.Since the disclosure data of our country is a quarterly disclosure,the middle span is very long,which is the collection of data and the credibility of the data is a challenge,while the financial theory model empirical test is also very demanding on the data.The experimental research can meet the premise of the theoretical model and the abstraction of the real market,through the monetary incentive and variable control can achieve the purpose of the study.Compared with the real environment,the advantage of the experimental environment is the "control" of the unrelated factors,so as to ensure the internal validity of the research conclusion.Internal validity is verified,and then through other empirical means to gradually verify the external validity of the market mechanism.From the theory to the laboratory experiment,to the real market,through the "ex post facto analysis" and other observational empirical method to verify the external validity of the market mechanism.And then through the empirical method to test the 2015-2016 China stock market fire saless behavior,to verify the external validity of the market mechanism.This paper studies the indirect route of contagion of open-ended equity funds through fire sales experiment,and describes the curve of asset firesales,which can provide a reference framework for the future research on the liquidity risk of open-ended equity funds.It is of great significance to prevent the formation of systematic risk of open-end fund,which is of great significance to guide the long-term investment and maintain financial market stability.