Research On Moderate Scale Of China's Open-end Fund

Fund industry of China began in the early 90s of the last century.After ten years development, the fund industry has made remarkable achievements. It has changed the financial concepts and financial management ways of the social traditions.Trust relationship as the core of financial management culture is more and more recognized and accepted, fund has become an important way to participate in social investment for the majority of investors. Especially open-end fund, with its unique institutional arrangements of "may purchase and redemption at any time", satisfies the investors'requirements in the stock market, i.e. the dynamic balance between fund's liquidity and profitability. It has played an important role in non-rational speculation existing for a long time, stabilizing stock market, avoiding intense movements as well as protecting the interests of medium and small investors. With the vigorous development of China's securities market, the size and number of open-end funds have grown rapidly. The impact of open-end funds on securities market is also increasingly large, and scale of the open-end funds has also attracted wide attention. Is the scale of the fund the bigger, the better? In the case of present national conditions, is there an appropriate scale range in the course of open-funds'operation? That's major research purpose of the paper.We have selected two-group funds as samples. Sample 1 is for all open-end funds that were established before December 31st,2004, not including the funds whose scales or rates of return are missing, a total of 89. Sample evaluation period is between early 2005 and mid-2006. Sample 1 will be used to research for the relationship between fund size and performance under bear market. Sample 2 is for all open-end funds that were established in the year of 2005, not including the funds whose scales or rates of return are missing, a total of 38. Sample evaluation period is between early 2006 and mid-2007. Sample 2 will be used to research for the relationship between fund size and performance under bull market. In the study, the paper uses a combination method of theoretical analysis and empirical analysis. First of all, we discuss the main factors affecting fund scale from inside and outside level. To be illustrated, there are many factors influencing the scale of open-end fund, and this paper just puts forward the ones that the author thinks more important.Then we analyze the correlativity between fund size and rate of return. On one hand, according to the cost of microeconomics theory, long-term average cost is a U-shaped curve. Scale economy is used to explain the fall part of long-term average cost curve, while scale diseconomy is used to explain the drop part of it. The operation of fund is similar to the operation mode of enterprises, and the differences just lie in the reasons resulting in scale economy and scale diseconomy. So theoretically, scale and performance of open-end fund should be quadratic curves. On the other hand, in light of the half-yearly comparative data of scale and yield rate for sample 1 and 2, we can also see that the relationship between scale and yield rate is quadratic curve wholly. Through description of the aspects above, we draw the conclusion that the relationship of fund scale and performance tends to be a quadratic curve both in the bull or bear market. It provides an important premise for building moderate scale theoretical model of open-end fund in China.Furthermore, according to the conclusion, we build a theoretical model for the moderate scale of open-end fund in China. In light of relevant data and previous model, we draw the conclusion that under bear market, moderate scale of open-end fund in China is between 2.37 billion Yuan and 4.93 billion Yuan, and under bull market, the number is between 3 billion Yuan and 5.84 billion Yuan. In order to test whether the results are applicable or not in reality, the paper divides the scale data in inspection terms respectively of samplel&2into three intervals, and calculates the yield rates of funds in each interval. As a result, fund performances of the former intervals in their test period are the best. According to the theoretical and empirical analysis, we draw the conclusion that whatever situation of the securities market, fund scale is not the larger the better, but there is a moderate operation range.Finally, the paper puts forward its own advice on moderate scale development of funds in China. It points out that only the fund managers, fund investors and fund regulators can understand the relationship between fund scale and performance scientifically, treat it correctly and give it enough attention, can funds develop healthier and more normative.