A Study On Risk Taking And Investment Performance Of China's Mutual Funds

With the rapid development of China's capital market,mutual funds are turning up for investing in this market.In 1998,two closed-ended fund Kaiyuan and Jintai were offering,from then on,mutual funds began to appear in the China's capital market and were with prosperous development.By the end of 2014,the total asset of all kinds of mutual funds in China is over 4 trillion yuan.Mutual funds have become to be one of the most influential institutional investors.The investment objectives of mutual funds are financial instruments which are traded in capital and monetary markets.So the mutual funds have to bear the price volatility and the risk of the financial asset.As an emerging market,high volatility and risk are still the main characteristics of our market,especially stock market,which are increasing the difficulty for mutual funds to perform better.Risk-performance in the capital market is the eternal unity of opposites.In hence,there is a hard choice for mutual funds:how to perform as high as possible and make the risk as low as possible.The mutual funds are far from controlling the market risk in reality.For example,since June of 2015,our stock market fell rapidly which was rising sharply in past year.In the market deline,the mutual funds are constantly selling the stocks irrationally instead of being the role of market stablilizer,which caused the huge loss of fund investors and the panic of stock market.In the third quarter of 2015,the mutual fund industry made the total loss of 650.3 billion yuan,which was the biggest quarterly loss in the history.Therefore,we want to realize whether the mutual funds can make profit continually for the fund investors.What are the characteristics of mutual funds' risk taking?How can different stock environment and institutions affect the risk taking of mtual funds?The paper mainly discusses the influence of risk taking to performance of mtual funds,and the inlucence factors of risk taking.The article will answer the questions mentioned above by several research perspectives by combination of theoretical research and empirical research together.We want to manke some conclusions according with the actual situation of mutual funds and motivate the mutual funds to get long-term profit for the investors with risk control by policy suggestions.The research of this paper mainly includes the following aspects.Firstly,the main information of mutual funds in China is introduced.The introduction includes the development history of mutual funds;public offering situation of mutual funds;scale and structure of mtual funds and the scale and structure of open-ended and close-ended funds.The research finds that the amount and asset under management of mtual funds are developing rapidly since 2005.However,the growth speed of mutual funds is decreasing since 2011,mianly resulting from the diversification of investee and the bear market.This part also generally analyzes the risk taking and performance of mutal funds.We define the comcepts of risk taking and investment performance;elaborate the relation between risk taking and performance and show the research perspectives.Secondly,risk taking and performance are studied on managers' personal characteristics.The influence of managers' personal characteristics to mutual funds' risk preference is empirically studied.The influence of managers' personal characteristics on mutual funds' performance is also empirically studied in this part.Thirdly,the correlation between risk adjustment and performance of mutual funds is studied in performance pursuit context.The performance pursuit behavior of mutual funds is analyzed.Then,the traits of risk adjustment of mutual funds are tested by data.The influence factors of risk adjustment are empirically studied.At last,the influence of risk adjustment to annual performance is studied.Fourthly,risk adjustment and investment performance are studied on stock market cycle factors perspective.The stock market cycles in China are distinguished.The risk adjustment of mutual funds on the perspective of stock cycle change is empirically tested and analyzed.The influence of risk adjustment to latter performance of mtual funds in stock market switch context is empirically tested and analyzed.Fifthly,risk taking and performance are studied on managers' departure from mutual funds to sunshine private funds.The risk taking of sunshine private performance is introduced.Then,the two kinds of performance before-and-after departure of mutual funds are compared.Meanwhile,the contemporaneous performance of mutual funds and sunshine private funds is also compared.Based on the research above,the conclusions can be made:(1)Based on the risk taking and performance affected by the managers' personal characteristics,we find that the manager who has been managing the certain fund for a long time or been a researcher intends to get higher performance.The difference of performance between different genders is not significant.The elder managers intend to take aggressive strategy.The female managers' investment style is more conservative.The managers who were the researcher intend to take aggressive strategy,when they are running the mutual funds.(2)Based on the correlation between risk adjustment and performance of mutual funds in the performance pursuit context,we find that mutual funds will increase the risk of portofolio in the every last season.After divided by binary bits and quarterback,we realize that the losers of the mutual funds will increase the risk.Yet,the winners of the mutual funds will take the conservative strategy.The results of empirical test tell us the mutual funds,which inflowed,were with low performance or losers in the every first three quarters,will increase risk of portofolio.The results of empirical test tell us the increase of risk will not lead to a better performance of whole year,which means the behavior of performance-dressing of mutual funds is invalid.Even worse,it may lower the performance.(3)Based on the risk adjustment of mutual funds six months before and after the turning points for the stock market,we find that the funds with low former performance will increase the risk of portfolio when the stock market is turning into the bull market and the funds with high former performance will increase the risk of portfolio when the stock market is turning into the bear market.The phenomenon shows that the funds are not the stabilizer of market.When the investors are pessimistic,the funds with high former performance are blunt to investment opportunity.When the investors are optimistic,the funds with high former performance are too overconfidence to neglect the risk.After empirically testing the influence of risk adjustment to latter performance,we can tell that overall the low risk strategy may help funds get higher performance in extreme market environment.When the market is turning into bull market,the aggressive strategies are helpful.But,when the market is turning into bear market,no risk strategies can help at all.(4)Based on the risk taking and performance before and after the managers'departure from mutual funds to sunshine private funds,we find that the sunshine private funds' total investment ability is better than mutual funds.By decomposing the total investment ability into stock selection ability and timing ability,we realize that the advantage of sunshine private funds is the timing ability,yet,the sunshine private funds'stock selection ability is weaker.In addition,the departure managers have the same habit of risk strategies as they worked in the mutual funds.Based on the conclusions above,the policy advices can be made:(1)Enhance the attention paid to the risk of portofolio of mutual funds,and reform the performance-centre evaluation system.The concrete steps include that the supervisory authorities should issues the risk management of mutual funds and intensify the supervision to those mutual funds who speculates excessively in short-term.The market participators should value more the long-term performance.The advertisement of star managers should be along with introduce of risk management and long-term performance of those managers.The authorities should warn the risk of mutual funds and criticize the mutual funds with malicious speculation in public.(2)Improve the supervision system and release more investment dynamic.The concrete steps include that the authorities should reduce the intervention to investment strategies and scopes of mutual funds.However,the authorities should enhance the regulation to specific transaction of mutual funds.(3)Encourage the diversification of investment subjects of capital market.The concrete steps include that the sunshine private mutual funds should be equally treated in the capital market.The legitimate interests and demands of every single participator should be protected,and of course,every participator should be supervised by regulatory system.Incentive mechanism of mutual funds should be improved,the communication between mutual funds and private funds should also be encouraged.(4)Improve the practical experience and ablity of mutual funds' managers.The concrete steps include that the fund companies should pay more attention to cultivate research ablility of mutual funds.The research experience should be more valued during the promotion of mutal funds.(5)Investors should concern more about heterogeneity of performance and risk taking of mutual funds.The concrete steps include that the investors should pay more attention to managers' investment experience and promotion path.Investors should notice the various factors of risk taking of mutual funds.In the market cycle change period,investors should hold the aggressive funds when the market is turning into bull market.The investors should redeem when the market is turning int bear market.Investors should manage the portfolio by market cycle.Buy-hold strategy is not recommended.