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China's Open-end Fund Liquidity Risk Management

Posted on:2005-01-12Degree:MasterType:Thesis
Country:ChinaCandidate:X D MeiFull Text:PDF
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Since the establishment of the first open-ended fund in China, one of the severe problems facing fund managers is the continuous large-scale redemption by fund shareholders, which could cause serious liquidity risk to open-ended funds and, if worse, may result in the liquidation of open-ended funds. This problem has resulted in a great negative influence on the healthy development of our country's fund industry. Because the open-ended fund is still a new financial product in China, fund managers lack knowledge and experiences regarding liquidity risk management. Therefore, it is an important as well as urgent task for our fund managers to analyze, avoid, and solve the liquidity risk caused by shareholders' redemption. Considering that, the author chooses this topic for thesis with the purpose of offering relevant and meaningful suggestions through the research of liquidity risk management of open-ended fund, hoping it will be helpful to the development of open-ended fund, the making of relevant policies and the stability of security markets.The research of the thesis begins with the conception of open-ended fund's liquidity risk and its forming mechanism. Afterwards, the particularity of our country's open-ended fund is analyzed. Next, because a shareholder's redemption is the primary reason causing liquidity risk of open-ended fund, the thesis studies a shareholder's redeeming behavior, and makes an empirical analysis. Finally, the thesis discusses the liquidity risk management of open-ended fund from the perspectives of asset management, liability management and the fund's relevant system establishment, internally and externally.The study of the thesis advances step by step, which follows the way as below: firstly, raising the problem of liquidity risk of an open-ended fund; next, making an analysis about factors causing liquidity risk; finally, giving relevant suggestions on the basis of investigating the ways of solving liquidity risk. With regard to specific methods of study, the thesis uses theoretical as well as empirical analysis with a view of making the study more valuable.This thesis is divided into four chapters.Chapter one discusses the theory of open-ended fund's liquidity risk systematically. Firstly, it introduces the conception of open-ended fund's liquidity risk, which refers to the possible loss due to the uncertainty of price when the open-ended fund manager has to sell the fund's assets for cash after facing the redemption of shareholders. Next, it studies the forming mechanism of liquidity risk, a positive feedback process, and discovers that the root of open-ended fund's liquidity risk lies in the conflict between the profitability and liquidity of its assets. Then, after considering the actual situation of our security markets, it discusses the particularity of liquidity risk of our country's open-ended funds. Finally, it studies contents and goals of liquidity risk management of an open-ended fund.Chapter Two mainly makes an analysis about open-ended fund shareholders' redeeming behavior. Section One gives an introduction to the current situation of open-ended fund shareholders' redemption of our country, which appears to be huge, continuous and comprehensive. Section Two discusses the factors influencing fund shareholders' redeeming behavior. It begins with analyzing shareholders' motives to redeem, and then investigates the factors influencing fund shareholders' redeeming behavior in detail, in which a fund's shareholder structure has a direct influence on the redemption scale. The irrational ways used by some open-ended funds in IPO result in a lot of shares hold by institutions pursuing short-term profit, which becomes another source for large-scale redemption. Because the fund's fundamental factors including performance, investment strategy, fund scale and fees and expenses are also very important for shareholders to make their decision to redeem, in Section Two the thesis analyzes them respectively. Section Three makes a emp...
Keywords/Search Tags:Open-ended fund, Liquidity risk, Asset and liability management
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