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Evaluation And Demonstration On Liquidity Risk Of Open-end Fund

Posted on:2005-11-05Degree:MasterType:Thesis
Country:ChinaCandidate:J ZhengFull Text:PDF
GTID:2166360155957740Subject:Political economy
Abstract/Summary:PDF Full Text Request
Open-end funds have confronted large-scale redemption from the beginning in China. Incomplete stock markets and immature investors increase the liquidity risks open-end funds of China confronted, which has proposed a new and important project for development of open-end funds in China. The system of free redemption of open-end funds results in its inevitable liquidity risk. Based on the formation mechanism, this essay proposes a new definition to the liquidity risk of open-end funds, which refers to uncertainty of opportunity cost or asset liquidation cost because real redemption is different from expected redemption when confronting random demand of redemption. So there exist three situations in liquidity risk of open-end funds: when liquidity assets held by funds exceed real redemption, excessive liquidity assets will give birth to opportunity liquidity lost; when liquidity assets are less than real redemption, liquiding assets of low liquidity to deal with unexpected redemption will give birth to redemption liquidity lost; when redemption liquidity lost exceeds the common range, liquidity crisis may break out. The essay constructs an integral model of liquidity risk including three situations. The model shows that redemption amount and liquidity cost are key points of controlling liquidity risk of funds. Elements of influencing redemption amount are market trend, profit achievement and investor structure of funds, while asset allocation and asset liquidity mainly influence liquidity cost. On the basis of model analysis and factor analysis, the essay devises two kinds of indexes to evaluate liquidity risk of open-end funds: one is totally based on the model and the other is simplified from the former one, and then use the indexes to evaluate the liquidity risk of open-end funds mainly investing stock market in China. Aiming at the problems reflected by the former evaluation, the essay proposes scheme and system on management of liquidity risk of open-end funds in China.
Keywords/Search Tags:Liquidity Risk, Open-end Fund, Opportunity Liquidity Lost, Redemption Liquidity Lost, Liquidity Crisis
PDF Full Text Request
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