An Empirical Study Of Investors’ Purchase And Redemption Behavior Of Open-end Fund In China

Open-end fund has become an important investment vehicle. Since the firstopen-end fund―HuaAnChuangxin" was set up in2001, up to the end2011,875open-end funds have been issued with total size of about2.2trillion yuan. It has twoattributes: flexible investment term and subscription or redemption at any time, whichwon the favor of investors, and make mutual fund play important institutionalinvestors in the stock market. However, the second attribute makes the investors’rationality has a direct impact on the fund’s cash flow, and then influence theinvestment decisions of fund managers and the whole stock market as a whole, andalso greatly affect the innovation of mutual fund product.This paper studies the behavior of open-end fund investors from two parts. Thefirst part is to research the investment decision-making process by the influence of thepossible factors, and make in-depth study of change of the influence over time. Thesecond part is to research the investment results of investors by analysis whetherinvestors can get positive excess returns through subscription and redemption.To investigate the behavior of investors and make some suggestions, fund flowwas innovatively split into purchase and redemption to study. Taking into account thedifferent number of samples per quarter, we use Fama-MacBeth method to analysisfund performance, unit price, dividends, fund size, existing time, return volatility andother factors’ impact on the subscription and redemption, and find the followinginteresting conclusions: purchase is sensitive to more factors than redemption does;purchase is negatively related with the unit price; redemption behavior are persistent;purchase and redemption is positively related with the last quarter fund return.For investment results part, following the logic of the Fama-French three factormodel, we use the positive and negative net purchase as a standard to adjust theportfolio quarterly and conclude that portfolio with positive net purchase can’toutperform the one with negative net purchase, and investors do not have the abilityto select funds.