A Study On The Relationship Between Open-end Fund Performance And Investor Behavior In China

Fund performance is an important consideration in fund investor’s purchase and redemption decision. Investor’s purchase and redemption could also cause a counterproductive impact to fund performance. Therefore, a positive interaction between fund performance and investor behavior is an important driving force to the sustainable development of Open-end fund. Some foreign literatures find that investor behavior has over-incentive for better performing funds but insufficient punishment for poorer performing funds. While domestic researches find the phenomenon of "abnormal redemption" and "poor fund company survival". There are still many inadequate on the study of the relationship between fund performance and investor behavior. Therefore, our study in this area could make up a blank of this area’s study, our study has important theoretical significance.Since the establishment of the first fund in2001, open-end fund has experienced a rapid development in China, it has obtained dominant position in China’s fund industry; There still exists a huge space for the development of open-end fund industry in China. Open-end fund would become people’s most important investment channel in China. Recently, China’s open-end fund usually encountered the phenomenon of "Huge redemption", investor preferred to redeem better performance fund. Thus, a study on the relationship between fund performance and investor behavior considering the actual situation of China’s financial market and investor structure would have important practical significance in promoting positive interaction between fund performance and investor behavior.This article firstly summarized foreign and domestic literatures on the study of the relationship of fund performance and investor behavior. Then we analyzed the mechanism of fund performance acting on investor behavior from the point of standard financial theory and behavioral finance theory respectively. After theoretical analysis, taking equity funds, bond funds, and balanced funds as samples, we tested the persistence of fund performance, using scan statistic method. According to the test result and previous theoretical analysis, we make a prediction on investor’s purchase and redemption. On the basis of performance persistence test, we use dynamic panel data model to analyze the relationship between fund performance and investor behavior of three type funds. Finally, this article investigated investor’s reaction to fund performance on different market stages, taking equity funds as sample.The main conclusions of this article are:China’s bond funds showed the best performance persistence, followed by balanced funds, equity funds showed worst performance persistence. There exist "abnormal redemption" and "disposition effect" in China’s equity funds and balanced funds, but these did not exist in bond funds, considering the result of fund performance persistence, these reactions of investor has its rationality. There exist significant Granger causality between fund performance and net redemption in China’s equity fund and balanced fund, but this causality did not exist in bond funds. In a bull market, investor performs risk aversion,"disposition effect" is obvious, so the equity funds didn’t perform Survival of the fittest. In a bear market, better performance could inhibit the increase of net redemption effectively. In a "shocks to adjust" market, because of greater uncertainty of market prospects, investor’s "disposition effect" was the most obvious, so was "abnormal redemption".Finally, according to empirical results and theoretical explanation, this article gives relevant policy recommendations from the view of government, fund companies, and investor.