Fluctuations In Closed-end Funds In China's Empirical Research

According to the development history of China's investment funds, the closed-end funds were introduced into our country earlier. The closed-end funds, which distinguish themselves from open-end funds with the fixed amount of fund shares in their close period, had become more mature and been regarded as a very important investment force after years of development.The review of existed literature on China's closed-end funds shows that most of the former researchers paid their attention to the assessment of closed-end funds' performance, or the analysis and explanation of closed-end fund puzzle. But little research on the price behavior and volatility of closed-end funds could be found. Such a situation leaves an opportunity for innovations on this topic. Meanwhile, the research on fluctuation and volatility of closed-end funds was also enlightened by similar research in stock market, various kinds of models had been tested in stock markets and been proved effective. These models offered a suit of powerful theory and methodology to this dissertation. In order to grasp the operation and risk features of China's closed-end funds, this dissertation had done a systematic research with the methods and experiences gained from stock market.From the perspectives of investors, regulators and the managerial companies of funds, this research has a great theoretical and practical meaning of helping them to get a whole picture of the operation and risk features of China's closed-end funds. First of all, the investors, especially the institutional investors such as insurance companies and social security funds could benefit from this research to construct more suitable portfolios following their preference. Second, the regulators of funds could make more suitable and feasible rules and policies to regulate the fund market and control the financial risk with a more profound understanding of the operation and development of closed-end funds. Third, this research could help the managerial companies of funds to improve their risk-adjusted performance assessment process for closed-end funds. With a further attribution analysis of the volatility, fund managers could draw proper counter measures to strengthen their internal control and risk management.In this dissertation, several questions will be answered empirically. First, what are the volatility features of China's closed-end fund markets and specific closed-end fund? Second, is there a long term equilibrium relationship between the two fund indices in different market situations, such as bear market or bull market? Third, is there an interaction of volatility between the two closed-end fund markets in China? Forth, what is the relationship of stock market indices and closed-end fund indices, and the interaction of their volatilities? Fifth, what is the impact of important political event, such as the RMB exchange rate regime reform in 2005, on the closed-end fund markets. With the questions mentioned above, this dissertation has done a systematic research on both fluctuation and volatility of closed-fund indices and specific funds. The main conclusions of this research are as follows. First, based on the collection and comparison of volatility models, this dissertation adopted proper models for analyzing the volatility features of fund indices and specific closed-end funds. There are significant clustering and convergence effect, whereas there is no significant asymmetric effect of volatility. By introducing dummy variables into the conditional variance equation of volatility models, this dissertation manifested the significant Tuesday effect of fund indices' volatility. This anomaly, which is similar with that in stock market manifested that our closed-end fund markets are also inefficient.Second, co-integration analysis under different market situation showed that the long term equilibrium relationship between the two closed-end fund indices is dependent on the research window. The co-integration relation between the two fund indices only existed in the bull market and vanished in the bear market. The two fund markets fluctuate together in the bull market. Further analysis with multivariate GARCH model showed that the volatility interaction between the two closed-end fund markets is significant in bear market and become not significant in bull market.Third, the long term equilibrium relationship between fund indices and stock market indices only exist in bull market. This manifested that closed-end fund markets fluctuate with stock markets in bull market. From the perspectives of both fluctuation and volatility, the stock markets have a more significant leading impact on closed-end fund markets. The impact from stock markets to closed-end fund markets is much stronger than that from closed-end fund markets to stock markets.Finally, with the help of nonparametric methods, the impact of the RMB exchange rate regime reform in 2005 on China's closed-end fund market was examined. The empirical results showed that the fund index had been significantly raised after the event with a comparative larger volume and lower volatility. This research firstly offered reliable evidence to the point that the appreciation and the expectation of further appreciation of RMB had promoted the prosperity of our closed-end fund market indeed.At the end of this dissertation, relevant suggestions are given to investors and regulators in accordance with the empirical research results. Moreover, the prospects for further research are also given based on shortcomings of this research.