Analysis And Management On The Liquidity Risk Of Open-end Fund In China Based On Value In Risk (VaR)

Open-end funds have been the mainstream of the global investment mutual fund industry and the developing direction of the mutual funds industry in China in the future. The liquidity risk of open-end fund is the risk caused by unfeasibility that the liquidity capital of open-end fund cannot fulfill the investors' redemptive needs. The reason for the liquidity risk of the open-end fund is the contradiction between the profit-chasing and the liquidity-chasing for the open-end fund. It is asymmetry between its purchase and redemption of the open-end fund that results in the high liquidity risk and the absence of the risk-avoiding mechanism. Therefore how to measure the liquidity risk becomes the main problem for the mutual fund managers and public investors to manage. This paper pursues a research on a new method of measuring and managing the liquidity risk.The paper consists of four parts. Firstly, as a theoretic preparation, this paper comes up with the issues of the liquidity risk of open-end fund, and makes a description about related concepts. Secondly, this paper divides the liquidity risk into endogenous risk and exogenous risk, and makes a qualitative analysis for the reason of the liquidity risk. Then it attempts to use the idea of VaR to design Liquidity-adjusted VaR model for quantitative analysis of LVaR. Thirdly, aiming at endogenous risk and exogenous risk, this paper tries to expound liquidity risk management separately from the views of fund managers and public investors, and brings forward the corresponding advices and countermeasures. Finally, it shows the outcome and insufficiency of the paper, and makes a simple prospect of liquidity risk management for the open-end fund.