Does Mutual Funds' Behavior Enhance the Market Quality-evidence from China Stock Market

In order to reveal the impact, of securities investment fund behavior on market quality, this paper starts from the perspective of microstructure of the securities market and utilized the transactional accounts of Shanghai Stock Exchange (SSE) to analyze the shocking effect of impact on market quality (including liquidity, volatility and information efficiency) by securities investment funds through applying the cross-sectional model. The empirical results showed that, institutionalization of the structure of domestic investors haven't improved market quality significantly. The increase (decrease) of positions by funds' transactions has significant impact on immediate liquidity and possesses permanent shocking characteristics. Net changes of positions by funds have led to higher hetero-volatility, whereas funds, functioning as institutional investors, do stabilize market to some degree in the adjustment phase of bull market, especially during the market slump of "2.27" and "5.30" in 2007; during the rising phases of stock market, the changes of positions by funds improve market liquidity and enhance informative efficiency of securities market.