Market Risk Measurement Of China Open-ended Fund Portfolio

Since 1990s, both the number and scale of China's open-ended funds have achieved great development. As the influence expands constantly, open-ended funds aggravates the fluctuation of stock market to some extent, for the single variety of investment, convergence of investment style, herd behavior in certain individual stock and some industries at certain time. At the same time, stock index futures cannot be hedging tool of open-ended funds in the short run due to a lot of restrictions of stock index futures on fund corporations. All these factors make the market risk of open-ended funds outstanding. Under the circumstance, it becomes a significant problem to be solved of fund corporations, regulators and investors to choose an appropriate method to measure and avoid the market risk according to China's open-ended funds'own features, which endows researches on the respect with theoretical and practical significant.The paper chooses an appropriate risk measuring tool and builds a fund portfolio consisting of fours different types of high-quality funds with different investment styles according to such factors as Morningstar's star rating of China's open-ended funds and yield risk. Based on SV-t model and Copula theory we establish, the paper applies VaR and ES to measure the market risk of the portfolio, and on the basis determine the minimum risk portfolio under a given confidence level, which is compared with that of weighted average of individual funds with same weight in order to reflect the risk decentralization of asset allocation and investment portfolio and provide certain instructive and practical significance to long-term investment of open-ended funds. In the light of the train of thought, the paper consists of 7 chapters, among which from chapter 2 to chapter 6 are the main parts.Chapter 1 is the introduction, analyzing the research background and significance. This article is narrating the research ideas and also gives the technical route, at the same time, profiles the basic contents and innovations.Chapter 2 reviews the theory and literature of the open-end fund risk analysis. Pointed out the microeconomic basis and theoretical basis of risk management, and comments to the research situation, on this basis, proposes research questions of this article.Chapter 3 summarizes the related contents of open-ended funds'risks. Using bottom up approach, this chapter analyzes step by step the sources of China's open-ended funds'market risk from 4 aspects such as macro economic policy, portrays the characteristics from 2 aspects such as the single variety of investment, and summarizes analysis method of open-ended funds' risks.Chapter 4 chooses the measuring tool of open-ended funds'market risk. According to the current research, the chapter establishes SV-t and LSV model with clear meaning, which is the feature and innovation of the chapter, and then presents VaR and the superior ES of risk measurement based on analysis of defects of volatility index.Chapter 5 measures the dynamic risk of individual fund using SV-t model. According to Morningstar's star rating of China's open-ended funds and taking the seven factors such as the yield risk into consideration, the chapter builds a fund portfolio consisting of fours different types of high-quality funds with different investment styles, gets the volatility series of respect returns through SV-t model and further measures the dynamic VaR and ES, which indicates ES method has superior performance.Chapter 6 introduces Copular theory and the application in multivariable financial analysis, focusing on the characteristic of Copular function whose relational structure and rank correlation coefficient remain unchanged under the monotonic increasing condition, which can be used to measure non-linear and abnormal correlation. Furthermore, the chapter analyzes its application in financial correlation analysis and risk measurement.Chapter 7 builds Copula-SV-t model to measure the market risk of open-ended fund portfolio. Through calculating VaR and ES of portfolio under different weight, the minimum risk portfolio is got and it is found that investment target of fund portfolio concentrates on Baokang Bond Fund (240003, general bond type), while the other 3 partial shares funds take a quite small proportion. Then the value-at-risk of minimum risk portfolio is compared with that of weighted average of individual funds with same weight, and the result indicates the risk decentralization of investment portfolio and the corresponding Copula-SV-t model provides certain instructive and practical significance to long-term investment of open-ended funds.Chapter 8 summarizes the content of the paper, and points out the weakness and prospects the further research.The innovations of the articler are as followed:1. The article establishes a set of screening system of high-quality open-end funds. That is based on reality, making the Morningstar's star rating results of China open-end funds as a staring point and considering these factors as investment style, risk and return, rates, the average working time of fund managers etc., the paper establishes an investment portfolio consisting of different types of funds with different investment styles, and makes conjoint analysis for the market risk.2. This paper establishes SV-t and LSV model with clear meaning according to the model of Liesenfeld, etc. (2000) and Jacquier, etc. (2004), and use SV-t model to measure the dynamic VaR and ES respectively on the basis of the distribution features and other statistical property of the four funds' logarithmic return series.3. The paper measures VaR and ES of the open-ended fund portfolio using Copula-SV-t model based on normality distribution and t-distribution, and further determines the portfolio with minimum risk under a given confidence level in order to provide long-term investment strategy of open-ended funds investors with instructive significance.