The Empirical Study On The Relationship Between Chinese Open-end Funds' Return And Risk Based On VaR

Since November 1997, "Interim Measures on Securities Investment Fund Management" promulgated, after ten years of rapid development, China's securities investment funds in their professional investment management, rational investment behavior, become one of the major institutional investors on the securities market of China. Meanwhile, China's securities investment fund investors is growing rapidly. But we also have to admit, due to China's financial market is not mature, speculative atmosphere of intense, large changes in market risk, especially after the financial crisis, securities investment fund income did not meet investor expectations, and compared to other high-risk equity investment instruments,the securities investment fund did not show "low-risk low-income" characteristics. Therefore, the studying of whether our high-risk funds to bring high-yield, has a strong practical significance.Modern portfolio theory tell us that a positive relationship exists between risk and return,portfolio risk the greater,the risk premium investors demand will be higher, that is, the higher expected return. Stock market has such a widespread understanding:if you want to get high returns,you had to take greater risks. Recently, however, many scholars have found that there is "risk-income paradox" in the field of corporate strategy. In addition,the U.S. finance professor Bob Haugen who spend half the time to study the stock markets found that there is a big secret in the stock marketthose with the highest-risk stock to create a minimum of in return, while those with the lowest risk of the stock is to create the highest return, in other words, stock returns should be inversely proportional to the risks. Therefore, it becomes extremely urgent to study China's securities investment fund return and risk relationship.VaR (Value at Risk), based on rigorous scientific basis and the use of statistical thinking, provides users a comprehensive measure of market risk approach.Value at risk is a probalistic method of measuring the potential loss in portfolio value over a given time period and for a given distribution of historical returns. Value at risk has risen above other risk measures as the dominating method of quantifying risk. Since 1994,JP Morgan has firstly used VaR in its annual report to disclose their financial risks, VaR has quickly become the new standard for global financial risk management. Many studies show that, VaR can truly reflect the Fund's risk. Therefore, this article uses VaR to measure the Fund's risks. In this paper, we mainly test the relationship between return and risk(Var,ΔVaR),and test whether the correlation changes over time in different economic conditions.In the paper,we use the natural logarithm difference of the sample data as the Fund's returns.Because the return does not meet the normal distribution, so we respectively use parametric and nonparametric methods to measure risk to cover the tail characteristics.We calulate non-parametric VaR by historical simulation method, parameters VaR by Cornish and Fisher extended model and GARCH models.By constructing the portfolio level and fund cross-sectional regression analysis, the paper found that there is a weak positive correlation between fund returns and VaRs (parameters, non-parametric). Then,we divided the sample into two sub-samples:pre-crisis period and the post-crisis period by October 2007 as a division point, and further found that there is a strong positive correlation between the pre-crisis period rate of return and VaR, but in the post-crisis period, there is a strong negative correlation. This explains to some extent that high-risk may not bring high-yield. Take the same approach we found that:the entire sample period from the point of view, the lower AVaR corresponds to a higher rate of return, but before the crisis higherΔVaR and lower AVaR corresponds to a higher rate of return, which means fund managers in reducing and increasing risk in a bull market access to higher income risk.Post-crisis period, there is a negative correlation between the rate of return andΔVaR, negative correlation means that, reducing the risk of securities investment funds can increase the income of the Fund in the financial crisis. This article also found Bali, Gokcan and Liang (2006) based on samples of the proposed pre-crisis hedge fund investment strategies in the market, abnormal fluctuations invalid.