Open-end Fund Investors' Decision-making Ability Analysis In China

The characteristics of open-end fund is the scale of uncertainty, investors can purchase or redeem fund shares. Since the development of China's open-end fund relatively short history, investors are not mature nor rational, therefore short-term speculation is serious, meanwhile fund application and redemption are very frequent. Investors may not be able to enjoy a good return. Meanwhile it brings challenge to fund managers and the volatility of the stock market has increased, so study of open-end fund investors'decision-making ability in China has a strong practical significance.The research of China scholars focused on the redemption and the performance measurement, while the research about investors'behavior and decision-making ability is limited. This paper will analyze the relation between different types of investors'decision-making behavior and some factors such as stock market returns, fund performance, rate, momentum factor, fund size and other factors using multiple-regression model. Besides, this paper will use the three-factor model and four-factor mode to test whether China's open-end fund investors'purchase and redemption behavior is rational, and test whether the existence of the distinction between institutional investors and individual investors, or the existence of "smart money effect".This paper provides some deep understanding of the behavior of different types of investors and decision-making ability. It can help investors to adjust future investment. It has important practical significance for the fund regulatory supervision. The content of this paper is in the following:The first chapter is the introductory article to introduce the topics of the background, content, research significance, innovation and articles structural arrangements.The second chapter reviews the relative literatures. Firstly it introduced related literature about the factors impact on investor decision-making, and then introduced the theoretical development and empirical research literature on the investors'"smart money effect ".Chapter three describes the data and analysis methods. Firstly it gives the descriptive analysis of sample data, then determines the net cash flow of different types of investors, and then determines the factors that influence investors' decision-making. Finally it introduces the performance evaluation method of fund portfolio.Chapter four makes analysis of the relation between different types of investors' decision-making behavior and some factors such as stock market returns, fund performance, rate, momentum factor, fund size and other factors using multiple-regression model.Chapter five tests the smart money effect of investors. Firstly it compares investors' "new money" and "old money" to test the existent of the smart money effect. Secondly it divides the net cash flow into groups based on the positive and negative then tests the existent of the smart money effect. Thirdly it divides the net cash flow into groups based on the high and low then tests the existent of the smart money effect. Finally it tests the existent of the smart money effect in different market environment.Chapter six is the conclusion of the paper, policy recommendations and the inadequacies of this article.The concludes is that for the individual investors, the net cash flow and current market returns and fund performance are positively correlated, as well as momentum factors. The short-sighted behavior is obvious. The behavior of institutional investors is not subject to market environment or the fund performance. It has negative correlation with the size of the fund. Since the fees of the funds are nearly the same, it has no significant effect to the investors' decisions.The test results of investor decision-making effectiveness show that the "smart money effect "for all investors is not existed. The redemption of the Fund's decision-making in a bull market often failed. Relatively smart money effect exists, it has smart money effect when application compared to redemption. The decision-making is relatively effective for the minority of individual investors and the the majority of institutional investors. The decision-making is relatively effective in the bull market. There is smart money effect for individual investors with low cash flows and institutional investors with high cash flows when redemption.