The Study On Style Drift Of Open-ended Equity Fund In China

With the development of economy and ongoing reform in china during last30years, we are experiencing an amazing growing period. Our capital market is undergoing a warm spring on half of the growth. The number of the domestic investors is rapidly increasing. In many investment products, the fund is one of the most popular choices due to the professional management and considerable gains on behalf of investors. When China initiated the establishment of the first batch of funds from1998, The total amout of fund in1998achieved40billion to2000billion in2012, the average anual growth rate reachs68%. Until March201230th the total amout of approved fund management companies reached70, operating989fund. These aggregate data indicates fund industry has indeed become one of the fastest growing industry in domestic capital market.But behind the incredible growth, there are many problems exposed. Generally China’s capital market is still in the emerging transition stage, a lot of paradox still exist, the remnants of some systems left after the transformation. Such as moral hazard and adverse selection attributed to fund manager. The point of this paper is one of these concrect problems—fund style drift. Since the moment the investors buy fund products. Investors and fund companies essentially constitute a contractual relationship. Investors purchase and redeem fund according to the contract, In response fund managers should also fulfill their own obligations strictly in accordance with the relevant contract of fund and the regulations. However, due to the lack of regulatory supervision, imperfection of fund information disclosure mechanism andd investors’ neglection of their own interests, part of fund managers against the fund contracts, fund style drift occures. It refers the difference between fund real style and the nominal style which marked in fund prospectus.From the birth of the fund industry to a mature operational industry right now, the discussion and analysis of the Fund’s investment style has never stopped. It represents the principles and key strategies of an fund’s operation. About the theory of the Fund’s investment style, including the early efficient market hypothesis, modern investment theory, capital asset pricing model later, and recent popular behavior of finance, the appearance of these theories constantly enrich the fund investment style study. On the basis of the early study of fund style research, We adopt Gruber-factor model to determin the real fund style.(in this article we chosen the open-ended equity funds as the study sample). Then we make horizontal comparison between nominal style(the style claimed when fund was raised) and real style, after that we find a considerable part of the domestic stock funds do exist style drift phenomenon. For the sake of longitudinal study on some pattern, we divide the sample period into three different ones. We also found that the fund investment style drift appears certain degree of convergence and the convergence looks more obvious during the same mutual fund companies’s fund.Sometimes fund style drift leads to gain’s increase or reduction of loss.(compared with the drift do not occure) Even it could be understood to be fund managers’ actively adjust behavior when they are confronted of ever-changing market. So maybe it’s radical to characterized it as simple violation of contract and operation. There is no doubt that the fund style drift phenomenon is clearly enlarged the investment risk to some extent, which is contrary to the fund contract investment principles and the original spirit of the contract. Fund investment style drift occurs due to a few reasons, including the particular domestic market, the quality of fund managers and lack of supervision. Investors and regulators should not ignore the concern of the Fund’s investment style.