Fund Performance Evaluation:a VaR Perspective

As coined in innovative financial market, investment funds had been developed for more than a century in developed countries. Experience shown, funds industry played a significant role in well developed financial market in the western countries. Especially in the recent two decades, the investment fund industry had experienced a continuous and sustained growth, thus value the industry profitability in a scientific and analytical manner would have both theoretical and practical importance.The core evaluation technique of the investment funds focusing on the trade off between profitability and risk. Traditional evaluation methods relied on measuring variance or β which gives some ideas on the risk status over their portfolios. However, as a new method of measuring risk, VaR gain insight of the profitability by directly modeling risk.The article consists of5parts:firstly introduce the background and briefly discuss past works have been done both domestically and internationally. Secondly, I will discuss the concept of the3classical profitability indicators, namely:Sharp Index, Treynor Index and Jensen Index. At the same time, I elicit VaR Model in this part.Some of model base on VaR used to Judge the Performance Of funds will be mentioned.The construction of VaR indicator would be introduced in the third party of this essay. They are Income difference per VaR and Income difference of Combination.Fourthly evaluate the profitability of32open-style investment funds based on VaR framework, which consists of using computer softwares such as SPSS. In addition, the rank of profitability would also be provided. Conclusion would be the final part, which explains the result as well as pointing out InadequaciesI have concluded the following:firstly, the rate of return for our open-style investment funds in2011is left skewed, sharp peaked as well as fat tail. Secondly, Since investors focus more on the ’downside risk’, evaluations based on VaR have more advantages compare to the classical three indicators. Finally, based on the market benchmark which had been followed in this article, I conclude that open-style investment funds were slightly underperformed or barely holding average in2011.