| Compared with close-end mutual fund, the most dominant advantage of open-end mutual fund is that investors can purchase and redeem their fund shares constantly on the base of their judgments, which greatly encourage investors and hereby welcomed by them. For this reason, open-end fund has become the mainstream of fund industry. The open operation model of open-end fund, however, also makes the open-end fund managers have to face an inevitable problem, that is the liquidity risk of open-end fund. Due to this open operation model, investors can purchase or redeem their fund shares. When large-scale redemption happens, fund managers will be forced to sell parts of their securities portfolio in a lower price to satisfy the requirement of investors, which will cause substantial loss of open-end fund. Therefore, the liquidity risk damages the stable operation of open-end fund. Considering the imperfect structure of China capital market and immaturity of investors as well as low-level fund management, open-end fund in china will have to face up with higher liquidity risk, which has aroused the concerns of society.This paper aims to study the liquidity risk of open-end funds in China by empirical means on the basis of Chinese practice and foreign successful risk management experience. Using the measurement index model that combines price factor with volume factor, we respectively quantify the daily liquidity risk and portfolio liquidity risk of 15 open-end funds, which set up before 2003. The empirical study finds difference of portfolio liquidity risk measured by two methods: sold assets at equal amounts of money or at equal ratio. Another contribution of this paper is that we firstly make a correlation analysis about how much performance ofopen-end fund affected by liquidity risk and variation of size. Empirical evidence shows that the liquidity risk is positively related to fond performance, but no evidence supports that the variation of fund's size is related to fond performance. |
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