The China's Investment Fund Performance Evaluation And Impact Factors Research

With the continuous development of China's securities market, securityinvestment funds are becoming more and more popular. It has advantage ofaccumulated investing, expert operating, and risk dispersion. With such characteristics,the security investment funds have stood out numbers of other financial planning tools.Especially for small and medium investors of all ages who are lack of investmentknowledge and with a strong tendency of risk aversion. With the development ofChina's securities market, the number of investment funds is increasing, the scale isenlarging, and the type is diversifying. The investors have such strong demand forinvesting than ever before, so how to evaluate security investment fundscomprehensively, rationally and scientifically has become a vital link with the healthyand rapid development of China's fund industry. Not only do we need to establish fair,authoritative institutions to carry out the evaluation, we also need to establish acomplete and scientific system to fully reflect and describe the evaluation process.Therefore, we can say that the field of securities investment fund evaluation studies isthe inevitable outcome of China's financial sector development to the certainhistorical stage.Standing on the investor's perspective, theoretically, the majority of investors ofthe security investment funds are the people who have a high degree of risk aversionand pursue the stable income. They often are lack of scientific and effectiveinvestment analysis capabilities. Through the process of investment fundsperformance analysis and evaluate scientifically and rationally, it can provideeffective decision making to the investors, that may guide them invest rationally.More important, the evaluation process is also contributed to popular fund knowledge,disseminate the fund information, and improve the confidence of investors. Standingon the point of view of the fund managers, fund performance evaluation can formatmechanisms of feedback and monitoring for the fund managers to promote theimprovement of investment management, the level of risk control anddecision-making efficiency, thus helping to improve their investment strategies havethe adapted abilities in the market. Standing on the point of view of regulators, fundsperformance evaluation are both quantitative indicators to inspire the fund managersand the standards to formulate and improve the relevant laws and regulations. Stand in the point of view of the fund industry development and financial market stability, aspreviously said in this paper, China's securities investment funds play an increasinglyimportant role in the market, objective and fair assessment helps to establish fair, justand open market order. At the same time, the funds hold the important capital flows,the funds' investment trend often induce the direction of the investing market hotspots. Through the study of the mature Western markets, the new capital mainlyflows to the higher ratings funds. Therefore, according to the funds performanceevaluation, we can find the market risk from another direction, so that we can practicepreventive measures timely.China's securities investment funds evaluation system is established on the basisof drawing from the advanced foreign experience and methods, so the formal is veryclose to the foreign evaluation system, but compare to the mature markets ofdeveloped countries, China's securities market has significant differences on the areaof development conditions, information disclosure system, financial system, securitieslaws and regulations and the investors' investment philosophy. Therefore, how toestablish a scientific and rational fund performance evaluation system, developadvanced performance evaluation method that also should be accordance with theactual situation of China's market has become the utmost importance problems to besolved for the China's fund industry.A complete performance evaluation system includes the performance evaluationand the performance attribution analysis. Though the performance values helpinvestors, operators and regulators to provide the necessary decisions, but isolatedperformance value can not provide us the whole picture of which elements affect thefunds performance. As the fund's participants, particularly the investors and operators,they need to understand the factors which lead to differences in performance in orderto make more scientific and rational decision-making in the operations of the fund,which also has the reference values for the investors'fund choice behavior.In this paper, the main part is divided into five chapters. This paper begin withthe China's fund performance evaluation analysis, combining fund persistence test andfund style analysis for establishing and improving fund performance evaluationsystem. After that, we make the fund performance influencing factors analysis.The Introduction describes the background and significance of topics, the contentstructure and basic innovation.The first chapter reviews fund performance theories. In this chapter, we focusedon the previous research of the contents this article worked on, and systematicreviewed the history of the main method that we used in this paper, the data envelopment analysis (DEA). Finally, we gave the future development trend of DEAmethod.In the second chapter, we evaluated the china's investment fund performance andtested the performance persistence. First, we systematically organized traditional fundperformance evaluation methods, which included the Markowitz Theory, the methodof capital asset pricing model and risk-adjusted fund performance evaluation method.We then established a system organized with 5 fund performance evaluationindexes——the fund profitability, the risk level, the operating cost, the ability togrow and the ability of the excess return. And based on that system, we used avariable returns to scale super- efficiency DEA method to evaluate the performance of72 funds. Finally, we test the fund performance persistence based on the empiricalresults of fund performance evaluation we did in the previous text of this paper. Thefund performance persistence focused on the relationship between the fund's pastperformance and future performance, in essence, it was the fund performancepredictability studies. Thus, after the performance evaluation, we conducted aperformance persistence test. The results from the empirical point of view, wesuccessfully applied the variable returns to scale super-efficiency DEA method toevaluate the fund performance as a new method, and at the same time, we were ableto distinguish and determine the source of the performance values. After using thetwo-way table method to test the fund performance persistence, we found when thefunds are treated as a whole, the fund existed performance persistence, but when afund was treated as a single, the performance existed a strong leap during periods.That means the leading funds difficult to maintain a leading edge and the behindfunds can easily change their position.Chapter III focused on the recognition of fund style. First, through anglicizingthe previous research on the meaning of fund style, combining with China's actualconditions, we summarized the definition of the fund of fund style in this article.Thereafter, we analyzed and compared the advantages and disadvantages between twobasic fund investment style analysis methods——the portfolio method and the returnmethod. The most important purpose of the fund style identifying was to judge theexistence of the fund style drift. The so-called fund style drift referred to a deviationphenomenon between the fund's actual investment style and the fund style thatdeclared in the recruitment book. For example, the prospectus declared the fund stylefor value; while the actual performance was growth-oriented style, such as the populartalk "words do not match reality". We applied the asymmetric information theory,behavioral finance theory and principal-agent theory as the three theoretical supports of the fund investment style drift causes. And introduced a second order stochasticdominance DEA method to identify the style as an innovation. We introduced a newidea which was called "model screening" to show the characteristics of the style offund profitability and risk level, then applied the Spearman and Pearson correlationcoefficient to these two style values for the correlation test to determine whether fundstyles existed the drift. From the empirical results that, in China's fund market, growthfunds, value funds or balanced funds all had a lot of style drift. In particular, thegrowth fund and value fund style drift occurred for more than 60%. We also foundthat the fund profitability style values existed convergence, which means when theinvestors selected the funds, and if they only put attention on the rate of return, theycan not make a reasonable choice; the style value of the risk level had a strongdifferences, which can be used as the judge of the fund's investment style drift. At thispoint, we had completed the evaluation process of the fund performance.Chapter IV was mainly on fund structural affect indicators for the fundperformance. This chapter studied the structural factors that affect the performance ofthe fund. We would refine these structural factors into two categories: one is theproduct structure factors of the fund itself; the other is the external environmentalfactors affecting the fund's operations. Liquidity hypothesis as a theoretical basis forthe structural factors of the fund itself, we would examine fund size and liquidity; inthe external environment, we will inspect four factors, the first is the inventory cyclebased on the theory of our country factors of the manufacturing industry cycle;Second, we use the "carrying capacity" concept which was derived from the carryingcapacity of China's capital market and the driving factors in physics; Third, combinedwith the money supply and monetary policy to examine china's monetary marketmoney supply factors; by exchange rate transmission mechanism of the internationalcapital markets, combined with China's actual conditions, we inferred the conductionpath of international capital on the impact of China's market, so we investigated theimpact of the international capital of China's investment market. In the empirical partof this chapter, we use panel data DEA method. Through empirical analysis,especially combined with the general poor overall performance of our fundperformance in 2011, we believe the main following reasons: First, china's securityinvestment fund size was too large, risky investments accounted for the proportion ofportfolio excessively, while the fund investment philosophy and the operationalmanagement of the fund concept was not yet mature enough to support such a largefund operations in our country; Second, the expected rising appreciation of RMB ledto a large number of international capital entering the flood of liquidity which led the authority forced to take austerity policies, the result was the direct inhibition ofinvestment supply levels; Third, the blind pursuit of stock market expansion led to thedilution effect of capital market, capital markets developed faster than themacroeconomic development, the stock market was in the load state, and there was no"blood" money streamed into the market; Fourth, although the industrial economystarted to recover, but still in the passive of the inventory stage, industry behavior andinvestment behavior delay made the current state of the industry and boost investorconfidence. This portion was the attribution analysis of external factors that affect thefund performance.Chapter V is about the analysis of fund governance structure impact on fundperformance. First, we carried out a comparative analysis about fund governancestructure and corporate governance structure, contract funds and corporate funds, thenwe summarized the problems of our funds'governance structure combined withchina's fund industry features, and proposed solutions. Secondly, we researched on thegovernance structure of fund companies. China's funds belongs to category of contractfunds, so this chapter basis for the "principal–agent"theory. Due to the specialty ofthe fund's governance structure, this chapter took in-depth analysis on how the fundgovernance structure affected fund performance from two aspects: the governancestructure of the fund organization and the fund's company governance structure. Thefund organization governance structure concentrated on the holders'subscription andredemption behavior; through the control of fund shares they could directly affect theoperating efficiency of fund companies, so they can put a large extent impact on fundperformance. On the company's governance structure aspect, we will examine theimpact of the fund management governance structure on fund performance. Althoughthe fund manager is the direct operator of the fund, but the resolution of the seniormanagement would have an indirect effect on the fund manager's operation, and thushas an indirect effect on the performance of the fund. It can be seen that the analysisof the fund organization structure was the commonality analysis of fund governancestructure, and the analysis of the fund's corporate governance structure belongs to thepersonality of the fund's governance structure. Through empirical research, from theempirical results, the fund management of the company for the performance of thefund was indirectly influence with weak significant, while the fund manager'spersonal characteristics was very significant operational impact of the fund. And forthe further analysis of the regression results, we found that the fund manager'stheoretical knowledge was more important than their financial work experience priorto engaging in the fund industry, and the more funds they were in charge of, the worse the fund performed; in the empirical analysis investment funding agencies, we foundthat the market behavior of institutional investors and fund performance are closelyrelated. In particular, under the role of the market wealth effect, the profit-drivenbehavior of institutional investors had a strong impact on the actual operations of thefund. From another perspective, the institutional investors in relatively strong abilityto obtain information can standardize to some extent the investment behavior of fundmanagement. This part was the internal factors of fund performance attributionanalysis. From another perspective, the institutional investors in relatively strongability to obtain information can standardize to some extent the investment behaviorof fund management. This part was the internal factors of fund performanceattribution analysis.The Conclusion part summarized the empirical findings of the earlier part andgave the appropriate policies.