Style Analysis And Classification Of Mutual Funds In China

Under the guideline of "accelerating the development of institutional investors at unusual speed" , mutual funds have emerged as one category of the most important institutional investors in Chinese securities market since 1997.Mutual funds become more and more important in the securities market ,which play important role in the process of transform from savings to investment. Analysis of the funds' style is important because it meets the need of investors,fund management corporations,fund rating agencies and supervisor. The investors need an operational index to choose the suitable fund which meets their own risk-return preference. The rating agencies should measure the performance of the funds in the same category. The supervisor need get the character of funds of different styles to make different regulations.The purpose of this paper is to find out whether the funds comply with the rules set in the fund contract to keep the consistent investment style. Through the RBS method developed by Sharpe, the author analyze the investment style of funds to find the investment objective and investment strategy. The author also estimate the misclassification of the Morningstar method and find out whether it suits the situation of Chinese fund market.The researching period is from January 2001 to June 2004 which is divided to four periods. The amount of sample funds change from 33 to 54 in different periods. The author mainly uses the weekly net asset value (NAV) of sample funds and the index of different asset. The analysis methods used in this paper are discriminant analysis and cluster analysis.The empirical conclusions are summarized as follows.According to the announced style in the fund contact, funds are divided to different categories. The development of announced style has different character in periods. Whether in amount or in asset , the funds which invest in growth stocks are in dominate station.Through the method developed by Morningstar , funds are divided to growth fund,blend fund and value fund in Chinese fund market . The funds don't comply with the announced style in most time. Except the yinfeng fund, most funds changed its investment style in researching period.The empirical result based on the Asset class factor model shows that the sample funds' investment on cash and treasury bonds is about 30% and investment on large value stocks is about 50% in researching period. It can be concluded that Chinese funds are relatively conservative and concentrated about their investment.The empirical results based on discriminant analysis and cluster analysis shows that the misclassification of Morningstar method is serious. This method don't suit the situation of Chinese fund market.The author is responsible for all the errors.