Research On The Reasons Of Styles Changes Of The Open-ended Fund In China

Thanks to the consistent and healthy economic development, Chinese capital market has experienced a boom for years. Meanwhile, the fund management industry is increasingly growing in China. Especially the open-ended funds, which balloon at a doubling pace, have presented a high-speed growth rate in terms of the number of funds and the amount of asset under surveillance alike. Overtaking the insurance industry, the fund management, in overall assets, has so far been the second largest financial industry in China.As great as the growth may be, some problems remain in existence in Chinese fund management industry yet. Fund managers violating the investment style stipulated in the contracts when making investment decisions is one of them. The violation, apparently harmful to the interests of stakeholders, comes as a hindrance to not only further beefing up the core competitiveness of the fund industry but also the industry's promising prospects in the long run. There have been a number of researches dedicated to this very topic by domestic scholars, most of which, however, simply scratch on the light analysis of the phenomenon without profound reasoning, let alone the empirical study on the causes. Based on others' works, the paper makes a deeper exploration as well as empirical analysis over the reasons to investment style shift spotted in the Chinese fund industry.First of all, following the previous related researches home and abroad, the paper discusses the theoretical factors underlying the formation of funds'investment style. It turns out to be closely associated with their respective investment philosophy, strategies and behavior. Secondly, by adoptingβ-value as a measurement, the paper samples on 40 open-ended funds established prior to 2006. Shifts in funds'investment style are detected through a before-and-aftermath comparison. In addition, the paper implements the grouping analysis approach to reclassify the sample funds according to their monthly average rate of return andβ-value. The result of the reclassification indicates a convergence in the investment style among the sample funds.More analyses, based on relationship of macroeconomic fluctation and secuties market, the agency theory and the theory of behavioral finance, are performed on the above founding, through which the reasons causing the investment style shift in Chinese open-ended fund are broken down into systematic and unsystematic ones. While the systematic reasons consist of macroeconomic factors and the mechanism of the security market, the risks of liquidity management, the performance pressure on fund managers plus their reshuffle risks are believed to be included under the category of unsystematic reasons. In the end, the paper constructs a correlation analysis between the change in funds'Sharpe ratios and seven other independent variables, which are the sequential growth rate of GDP and CPI, the change in interbank offered rate, the holdings of heavy-loaded stocks among sample funds, the percentage change of funds'net equity, the quarterly ranking of funds and the reshuffle of fund managers. A couple of policy suggestions are therefore proposed according to the result of the correlation analysis.