Empirical Research Into The Applicability Of Self-designed Benchmark Of The China Mutual Fund

With continuous development of China's capital markets, mutual funds, are awared of the vast numbers of investors, and believed. With such complex fund products, how to value the performance of different funds and make objective and comprehensive evaluation, is concerned by the Fund's involvement parties. Self-designed benchmark, played a good role at this scence, it is seen as tool to divident investors and managers into a way of duty. Benchmark portfolio investors are in charge of the benchmark portolio and managers responsible for over-performance. With the benchmark portfolio, investors can clearly know how to evaluate the managers. Investors can use it to control the total number of investment risk, and investment managers use it to carry out asset allocation. Mean while the benchmark portfolio set up a quantify channel of communication between investors and managers.whithin the principal-agent relationship between investors and managers, the benchmark portfolio are used to design the structure of the remuneration.This paper attempts to combine the latest research results from abroad with China's actual situation of the fund industry, to analysis the applicability of the benchmark portfolio of the China Mutual Fund. At the same time, we will select some sample fund to analyze the specific motives of the chosing benchmark portfolio. After all we will give tailored soluntion.In this paper, we use three ways to analysis: the inductive interpretation, the practice of summary, empirical analysis. We select samples from the China Mutual Fund industry, to study the applicability of the Fund Self-designed benchmark portfolio from performance evaluation and the style of the Fund Self-designed benchmark portfolio. First, according to the sixth and seven parts in the standard of evaluation of the quataly of the self-designed benchmark portfolio, which was noticed by Bailey (1992), we combine this with orthogonality properties of sel-designed benchmark portfolio, formed by Tierney, Bailey (1995) to vealue the performance of fund, which result will be used to infect the applicability of the self-designed benchmark portfolio; Second, we will used the Morningstar style box and Fama-French (1992) three facters model to study styles of fund portfolio and self-designed benchmark portfolio, and compare them to evalue the application of benchmark. In this paper, the results of the above argument are that most self-designed benchmarks are not with the applicability, and just only about 11.4% of the Fund ,who with a optional practical benchmark portfolio.According with the empirical analysis results of the applicability, we will study the intrinsic motivation of fund manager who select a specific benchmark portfolio.We based on the correlation between the Fund's cash flow and risk-adjusted earnings, and used the model proposed by chevalier and Ellison (1997), Sirri and Tufano (1998), which noticed that there is a line-relationship between cash flow and fund risk-adjust return, to study each according facters of the goup funds, who have choosed a optional practical benchmark and who don't. with the comapring result o two facters, we find the risk-adjust return of fund, who have choosed a disapplicability benchmark, can bing more cash flow then other funds, which ondicate us the manager, who choosed the non- applicability benchmark, have deliberately to manipulate the benchmark to improve cash flow.Finally, this paper, on how to improve the applicability of the China mutual Fund Self-designed benchmark, made a number of comments and suggestions.