A Study On The Liquidity Risk Of Open-ended Fund And Its Management

The advanced operation mechanism and scientific institutional framework of the open-ended fund are the reasons why it can be developed rapidly .Comparing with the close-ended fund, redeeming is the most important innovation of the open-ended fund. However, the system of redeeming also causes the liquidity risk that the open-ended fund is difficult to avoid. The characteristics of the open-ended fund in its operation product and contract are the endogenous reasons which cause the liquidity risk of the open-ended fund.The institutional defect of securities market is the exogenous reason causing liquidity risk of the open-ended fund. During the period of transition, the institutional change of the securities market is a kind of mandatory change in which the government plays an essential role. But the government excessive and inconsistent interference will have a bad effect: The governmental regulations on the main body of trade, trade variety and trade market (market segmentation), affects the environment of the open-ended fund liquidity.Among all principal—agent relations of the fund, the relation between fund investor and administrator is the most important. Under the information asymmetry condition, the optimum contract requires agent to share certain risk with principal. Fixed income makes fund administrator not to undertake any risk, it may cause fund administrator's shirking problem. It may influences the herd behaviour effect of fund. The herd behaviour effect of fund causes funds to hold "key assets ", it may cause very high risk to open-ended fund when it want to sell key assets.The herd behaviour and limited rationality of the fund are the endogenetic reasons causing liquidity risk of the open-ended fund.The fund investors of China are the investors with limited rational characteristics because of asymmetric information in the securities market, the systematic deviation of the investor's judgement under the uncertain condition and difference among investors. The paper shows the commonness and difference among different kinds offund investors. Redeeming of open-ended fund in China is severer; Fund investors prefer short-term holding of fund.In order to strengthen the management of the liquidity risk of open-ended fund, it is necessary to measure the liquidity risk of open-ended. In order to manage the open-ended fund liquidity risk, it is necessary to manage the liquidities of fund assets and cashes and balance their structure of risks. The liquidity management of open-ended fund should not only include advanced risk management skills and institutional arrangement, but organizational arrangements of relevant operational procedures as well.