Research On The Redemption Puzzle Of China’s Open-End Fund And The Factors

Since China issued the first open-end fund in2001, thanks to its characteristics of free purchase and redemption, the open-end fund has gained a rapid development. But at the same time, fund companies face up with the large-scale redemption of investors. As the fund market system of China is imperfect as well as lacking of hedging instruments, the large-scale redemption will have a destructive effect to fund operation and increasing the liquidity risk. So it’s the exact time for us to find out the decisive factors that coursing investors’behavior. The factors including:yield of fund, dividend, return volatility, fund scale, yield of stock market,90-day bank offered rate. The paper adopts a panel date model to study the different impacts in the slow development stage and the rapid development stage of the investor’s large-scale redemption. The conclusions are as follows:(1) fund performance changes from positive feedback to negative feedback on the role of investor redemptions.(2) Investors prefer to fund with more dividends.(3) Investors have a rational change with relation to risk of the Fund.(4) Investors no longer favor the large-scale fund.(5)The rising stock market will promote the behavior of investors’redemptions.(6)The cost of capital has no correlation with the redemption of investors. Finally, based on the empirical findings, suggestions and advices are brought forth to solve the problem of the large scale redemption and to improve the development of open-end fund healthily.