Study On Volatility Characteristics Of The Rate Of Return In The Chinese Open-ended Funds Market

Since the first open-ended fund established which had been approved by ChinaSecurities Regulatory Commission (CSRC) in August2001, the open-ended funds have beendeveloped rapidly in China. Now the open-ended funds have become one of the mostimportant institutional investors in the Chinese capital markets. The open-ended fund whichassets will invest in stock market and bond market is a financial instrument. Although theopen-ended fund has the advantages of specialty finance and portfolio diversification, the rateof return of the open-ended fund still has a fluctuation arising from many risks. The volatilityof the open-ended funds market yields will has an important influence on the stabledevelopment of capital market, the fund managers effectively managing the fund assets andthe investors keeping and increasing the value of the assets. Therefore, we have a correctunderstanding of the volatility characteristics of the open-ended funds market yields whichwill be important practical and theoretical significance.This paper aims to apply econometric models to explore the volatility characteristics ofthe yields of the open-ended funds market overall and the different types of open-ended fundsas the stock, hybrid and bond. First of all, this paper determines to choose the researchmethods after elaborating and evaluating volatility theory and various volatility models.Besides, this paper applies the test method of normality and independence to analyze the basicstatistical characteristics of the yields of the open-ended funds market overall and differenttypes of open-ended funds markets in China. The basic statistical characteristics analysis is tolay the foundation for future research. Then, this paper uses single variable GARCH familymodels, dynamic conditional correlation multivariate GARCH model and the modified R/Smethod to research the volatility characteristics of the Chinese open-ended funds market. Atthe same time, we make a comparison with the differences of the volatility characteristics ofthe different types open-ended funds yields. Finally, this paper sums up the volatilitycharacteristics of the open-ended funds market according to the results of empirical analysis.And some policies and proposals will put forward for the open-ended funds of regulators,managers and investors on the basis of the volatility characteristics of the open-ended fundsmarket. Through the study, we can get some basic conclusions as follow:First, the return time series which is of the open-ended funds overall and the differenttypes open-ended funds does not obey the normal distribution but shows a obvious highkurtosis and fat tail. There is no independence of the rate of return time series, but it hasauto-correlation. The return time series is a stationary time series.Second, there are significant volatility ARCH effects, volatility clustering andasymmetrical features in the Chinese open-ended funds market overall and the different typesopen-ended funds markets. In addition, there is obviously positive correlation between thereturn and volatility of the open-ended funds market overall in China, but the risk premiumcoefficient is very small. In different open-ended funds markets, only the bond open-endedfunds market does not reflect the obviously positive correlation between the return andvolatility.Third, there is a difference in the effect of applying GARCH model to fit the volatility ofthe return time series of the open-ended funds market under the residuals obeying the normaldistribution, student’s distribution and GED distribution. The effect of GARCH model underthe GED distribution fitting the volatility of the open-ended funds market is the best.Fourth, the dynamic correlation coefficient between the open-ended funds market andstock markets in China are highly positive and obviously time-varying. There is a greatdifference in dynamic correlation coefficient about different types of the open-ended fundsmarket and stock markets. The fluctuation range of the dynamic correlation coefficientbetween the bond open-ended funds market and stock markets is the largest, but the dynamiccorrelation coefficient of the stock open-ended and stock markets has a more stable volatilityrange.Fifth, the Chinese open-ended funds market has a fractal structure. The Hurst exponentof the return time series of the open-ended funds market overall and the different typesopen-ended funds markets is greater than0.5. There are a significant long-term memorycharacteristics and statistical cycle.