The Study Of Asset Allocation For The High Net Worth Individuals Of Commercial Banks

The foreign financial institutions have entered our demestic market to seek for the big opportunities in face of enormous potential wealth market in China.Chinese-funded financial institutions, particularly the commercial banks(herein after called CBs) have to compete for wealth market share.There is no doubt that the increase of market share is due to the increase in high-net worth individuals(herein after called HNWIs). And how to win more HNWIs'trust and loyalty, are the key problem to address for the foreign and Chinese financial institutions at the present and in the future.The HNWIs pursuit of the maximiztion revenue under the certain cost based on economic assumptions of economic man.No matter how the services forms of CBs are,the starting point of CBs should be to maximize the interests of HNWIs.Asset allocation is one of important parts of investment decisions and it impacts the investment incomes enormously. In order to maximize the benefits of HNWIs, CBs should provide HNWIs with high quality asset allocation services.However,there are a few of research about the asset allocation of HNWIs of CBs.Based on this,the paper starts with the asset allocation and begain to study the asset allocation of HNWIs of CBs on the basis of previous studies.Focusing on the following:(A) The characteristics of HNWIs of CBs.The paper takes the method of questionnaire and statistical analysis to obtaine the appropriate characteristics of HNWIs in five aspects which are basic features, risk preference,investment knowledge & experience, investment objectives and investor confidence.The characteristics of HNWIs are as follows:most of them are 50 years of age; HNWIs are mainly three types, one is professional and technical personnel, one is private entrepreneurs One is the other type; the wealth of HNWIs is coming from the stability income and expenditure and high growth of capital accumulation;the net value of HNWIs concentrates in between 500-1000 million yuan;most of them have some investment knowledge and investment experience;investment products are including cash deposits, stocks and open-end funds, real estate, currency-linked structured investment products, private equity and corporate entities;the primary investment objective of the HNWIs is long-term growth and positive growth, the investment period is 3-5 years;most of the HNWIs are active investor, and able to bear the risk, risk tolerance is strong; the HNWIs customers are cautious about future trends of the stock, fixed income real estate cautious,the confidence level is 50%.(B) The study of asset allocation products. By analysis of the benefits of history data of the major investment products, we can see investment products linked to the historical return and risk, high risk means high returns. In view of asset allocation is intended to spread risk, this paper choose the nine macroeconomic indicators and two types of assets to analyse the relationship between them by the empirical methods including unit root test, cointegration test, Granger causality test, impulse response and variance decomposition with domestic data from April 2003 to July 2010. Te result proves that the inflation is the most important macroeconomic factors to the income of investment products in short and long term.According to investment clock,the paper gives the asset allocaiton type of HNWIs of CBs.(C) Construction the asset allocation model of HNWIs of CBs.On the basis of BL model,the paper take the inflation and constraint of VaR into account and build a new model,named BL-Inflation-VaR asset allocation model.Mathematical test proves that the expected return of ith asset is E(R(?))=[(τΣ)-1+(PτΩ-1)]-1·(τΣ)-1Π+PτΩ-1Q]+(?)δjβj. j=1 Compared with the oridinal model,the new model shows that inflation will impact expected return through two ways,one is risk aversion parameter of inflationδj,another is sensitivity of inflation riskβj.(D) Empirical test of asset allocation of HNWIs of CBs.Combine with features of HNWIs,the paper selects the stock (Shanghai Composite Index), the Fund (SSE Fund Index), real estate (commercial housing sales price index), gold (spot gold), savings deposits, QDII (Hong Kong's Hang Seng Index), commodities (Reuters CRB index), and other assets to make a empirical test.With Matlab7.6.0 tools,the empirical results show that,the variance of Black-Litterman-Inflation-VaR model is smaller than the M-V model and the BL model.The BL-Inflation-VaR model can more effectively control the risks,meanwhile,the new model reflects the views of investors.Based on previous research, this paper carried out innovation as the following:(1)Unique research path.The paper started with the point of asset allocation and discuss how the CBs provided good asset allocation services with HNWIs to win their trust and support.The idea of the paper was the HNWIs were dominant and the CBs were aider.The upsaid research path was different from the current study path in the domestic market.There were two ways to study the services of HNWIs,one was to study the value of HNWIs and how to get them and their maintenance from the point of CRM.Another way was to study how to win the HNWIs by the means of changing services mode,improving the services contents and innovating products from the point of private banking.The same idea of upsaid two paths was that the benefits of CBs were the first and the HNWIs'were the second.(2)Construction and empirical test of BL-Inflation-VaR asset allocation model.On the basis of BL model,the paper constructed a new model with the inflation risk named BL-Inflation model and made mathematical proof for it.But the new model was in MV framework for asset allocation,the paper took the constraint of VaR into accout and made the asset allocation model of HNWIs of CBs,named BL-Inflation-VaR asset allocation model.The paper made a details of parameter determination and model process.Besides,with data of different types of assets,the paper made a empirical test for the BL-Inflation-VaR asset allocation model and deepen the practical application of the BL model.(3)Proved that inflation impacted the expected return through two ways, one was risk aversion parameter of inflationδj,another was sensitivity of inflation riskβj.Ifδj<0,βj<0, investors would expect a higher yield to compensate for potential losses arising from inflation risks with the comparision of the original expected return.The higher of -βj was,the higher expected return of investors was;ifδj<0,β>0,the expected return of investors would be reduced with the comparision of the original ones.The biger ofβj was,the smaller expected return of investors was. The results were opposite with the upsaid ones.Ifδj>0,βj<0,;the bigger of -βj was,the smaller expected return of investors was;.Ifδj>0,β>0,the higher ofβj was,the higher expected return of investors was.