Research On The Liquitdy-Risk Identification, Control And Prevention Of Open-End Equity Fund

With the policy of encouraging and fostering institutional investors and the rapid development of stock market in China, mutual fund has become one kind of institutional investor that draws a great deal of attention. As the mainstream of the innovative development of fund industry, open-end fund has become the important financial means for the people. By the first quarter of 2006, there had been 53 investment fund companies, managing approximately 500 billion RMB, while the open-end fund had amounted to 146. Meanwhile, the variety of the financial products has also been continuously enriched and updated. However, under the current state of capital market, open-end fund has to be confronted with the structural conflict resulted from the incompatibility between the capital with a high liquidity and the assets with a low liquidity, which highlights the liquidity risk of the fund. How to identify, control and prevent the liquidity risk of the fund has been a realistic question that both financial experts and fund managers can not evade, and therefore is the focus of this dissertation.What should be pointed out is that the study liquidity risk in the current literature presupposes the price-driven mechanism while China's stock market is a typical order-driven market. As a result, the traditional measurement of liquidity risk lacks the presupposition and theoretical foundation. Furthermore, With regard to liquidity risk management, most studies only focus on one or another stage of liquidity risk management, while ignoring the organic relations between different stages. Finally, the study of liquidity risk management departing from the practice is comparatively scarce, the conclusion of which can not be readily applied to the practice of open-end fund management.Take account of the order-driven nature of China's stock market and the practice of open-end fund management, this dissertation conducts a systematic research on the liquidity risk management of open-end equity fund in terms of risk identification, risk control and risk prevention. Theoretically, the study of impacts on stock price through mixed distribution classified information GARCH model enriches and further enhances the methodology of liquidity measurement as well as the theoretical system; At the same time, this research put forward a new way of liquidity risk control, that is, optimizing integrally the liquidity risk in the fund-cashing process and the market risk at the end of fund-cashing. Empirically, this study utilizes the high frequency data of stock trade with a view to ensure the correct measurement of stock liquidity; Also, this study strives to test empirically every qualitative conclusion, so as to apply the conclusion to the fund management practice more easily and effectively.Main tasks and conclusions of this dissertation:Firstly, this study analyzes qualitatively the liquidity risk formation mechanism of open-end fund, sums up the practice and theoretical background of open-end fund liquidity management and then set the purpose and content of this research.Secondly, this study summarizes the relative researches on liquidity risk management domestically and abroad, with the emphasis on the open-end fund scale change, the factors affecting liquidity, measurement and control of liquidity risk, etc., and furthermore points out the limitation of the present researches and set the theoretical foundation for the further research.Thirdly, with regard to stock liquidity, this research combines the two approaches to identifying trade type, that is, tack method and quote method, and calculates the trading order flow, based on which this research establishes a general microstructure model of trade volume's impact on stock price and calculates the changing price impact coefficient as well as the fixed impact coefficient of 30 index-component stocks of Shanghai A-stock market; Furthermore, this research substitutes the information from order books for the trade volume in the variance equation of mixed distributional GARCH model to explain the variants, while meanwhile maintain trade volume in the regress equation. In this way, a stock price impact classified information mixed distribution model is constructed. The empirical analysis of sample stocks proves the validity and reliability of this model in terms of measuring and calculating the price impact coefficient. It is also found that this model can better explain the stock price's impact than the common linear price impact model. Thus, the existing methodology of measuring liquidity and theoretical system are greatly enriched and enhanced, and more importantly, a solid foundation is set for identifying the liquidity risk of open-end fund.Fourthly, regarding liquidity risk identification, this research considers both the exogenous liquidity risk and endogenous liquidity risk. Firstly, as for exogenous liquidity risk, this research analyzes the relevant factors affecting the scale change of open-end fund and account for the impact of some factors, including income index, cost index, risk index, dividend index, and etc; Secondly, this research identifies the endogenous liquidity risk of open-end fund through quantitive index. Based on the existing VaR model, a new liquidity risk measuring model, namely, L-VaR is established. Tested through Monte Carlo simulation, it is found that cashing stock, cashing quantity and trading speed will have an obvious influence on the value of liquidity risk, which offers a starting point for the research on liquidity risk control of open-end fund and is therefore highly inspiring.Fifthly, as to liquidity risk control, this research establishes the theoretical framework of the liquidity risk control and, to calculate the optimum liquidity risk control strategy, give an mathematic expression representing the liquidity risk and market risk in continuity. We will first decide the quantity of the necessary cashing stock by means of objective-planning and then make sure the optimum cashing strategy in the cashing process by means of randomly-dynamic-panning; Through empirical testing, it is found that the optimum cashing strategy of the portfolio is affected simultaneously by price, liquidity, fluctuation and etc.Sixthly, with regard to liquidity risk prevention, this research bases its analysis mainly on the aspects of balanced management, capital source, fee structure, institution design and so on, and then taking reference from the advanced experience abroad, concludes some helpful measures to prevent risk.The innovations of this dissertation are as follows:Firstly, this study establishes the stock price impact classified information mixed distribution GARCH model to investigate the correlation between stock price and trade volume, and calculates the price impact coefficient based on the high frequency data of stock trade. The empirical testing proves the superiority of this model compared the general microstructure model, thus offering a strong support for the identification of liquidity risk.Secondly, this study conducts a quantitive analysis of the liquidity risk of open-end fund by means of L-VaR model, and designs three cashing strategies of the fund, namely, even-distributed cashing strategy, liquidity-first cashing strategy and minimizing-accumulative-price-impact cashing strategy. It is found that the liquidity risk corresponding to each cashing strategy is significantly different. Thirdly, this research establishes a new liquidity risk control framework by taking account of both the liquidity risk during the cashing process and the market risk at the end of the cashing process. The optimum liquidity risk control strategy of open-end strategy is achieved by means of both objective-planning and dynamic-planning.To sum up, this dissertation sets up a comprehensive system of liquidity risk management of open-end equity fund, taking risk identification, risk control and risk prevention into account, which not only enriches and advances the liquidity management theory, but also conducts a great quantity of empirical researches departing from the liquidity risk management practice of china's open-end fund industry and draws some valuable conclusions. Therefore, this research has important theoretical and practical value for managing liquidity risk, safeguarding the vested interest of investors, enhancing fund management and promoting the healthful development of the fund industry.