A Research On The Investment Style Volatility Of China’s Open-ended Funds And Its Influence

In recent years, with the capital markets to encourage the development of institutional investors, the fund has been made rapid development. The fund gradually becomes the major institutional investors in the capital market, more and more investors to join the team of fund investment. The investment style of the Fund as an important reference for investors in the selection of fund, investors who need to accurately identify the investment style of fund, can choose suitable fund to match with their own risk preference. However, the actual investment style of the fund may deviate from the style it claims.Many scholars have empirical research on the style drift of fund in the capital market. They found that the phenomena of style drift exist in the global capital markets. Especially, the convergence phenomenon of fund’s investment style is very serious and there has very obvious style drift in China’s fund market. Some scholars also study the impact of fund’s style drift for fund performance, and found the fund’s style drift can help improve the fund’s performance. They believe that the fund’s style drift is the outward manifestation of the fund manager to change the investment strategy, in order to adapt to the changing market environment. It is helpful for fund managers to grasp market opportunities.So far, the majority of literatures are to research fund’s style drift and its influence on fund performance. However, the literature on the investment style volatility of the Fund is also unusual. The fund’s investment style volatility can reflect the adjustment of the strategy of the fund managers in the investment process, which will help to clearly analyze the investment behavior of fund managers. American scholar found the performance of fund which has a lower volatility style is significantly better than a higher style volatility fund by the Research Fund style volatility of fund performance correlation in U.S. fund market. Whether there is the same conclusion in china’ fund market? This paper, on the basis of existing research results of other scholars, tries to study the impact of fund managers’ behavior on fund performance from the fund style investment volatility.In the course of the study, firstly the paper introduced the method of the fund’s style identification and classification, as well as the theoretical basis of the Fund’s style drift and volatility. For example, modern portfolio theory, behavioral finances theory, information economics theory.In the empirical analysis,248equity open-ended funds are selected as the study sample in the period from January2002to December2010. And the fund is divided into nine kinds of styles by using the Sharpe style classification model. In the classification process, including the calculation of Carhart four-factor in China’s capital market. To construct the fund’s investment style volatility (HSV), according to portfolio information of the fund over the past24months.The process of studying the investment style volatility of the Fund, and its influence is divided into several aspects. Firstly, respectively, to study the Jensen a and HSV’s impact on the fund’s risk-adjusted future return. Secondly, analysis the impacts of HSV to the risk-adjusted future return from three style characteristics’ relative contribution to HSV. Thirdly, study which reason caused the investment style volatility will have a significant impact on risk-adjusted future returns from IHSV and UHSV. Finally, analysis the impacts of HSV on the fund’s risk-adjusted future return in a different market environment.Some conclusions can be drawn from the results of the study. Firstly, The Jensen a and fund’s risk-adjusted future returns is significantly negatively correlated from a long time perspective. This shows that a particular investment strategy of the fund cannot have been obtaining higher excess returns in long term. Secondly, Overall, HSV can produce significant effects on fund’s risk-adjusted future return only in the short to medium term. The greater HSV, the higher risk-adjusted future returns. However, HSV is particularly significant impact on future risk-adjusted future return of the fund in the short-term. Thirdly, the style volatility caused by the risk characteristics of market value has the most significant impact to fund future risk-adjusted income. Finally, through decomposition of HSV, the higher the style volatility caused by the fund managers take the initiative to change portfolio assets, the higher the Fund’s risk-adjusted future returns.This paper has several innovative points. Firstly, the paper researches the fund’s investment style from the new perspective. And analysis the impact of fund managers’ investment behavior on fund performance by researching the fund’s investment style volatility. Secondly, the paper uses a novel quantitative to structure the fund’s investment style volatility (HSV). Also analyzes the main source of the fund’s investment style volatility and the major part of which to affect the Fund performance. Finally, HSV decomposed to the IHSV and UHSV to discuss the correlation between them and fund’s risk-adjusted future return. This can provide some reference proposal to investment decisions of the fund managers, and also provides a new research direction for further study of the investment style volatility of the Fund on the predictability of fund’s risk-adjusted future return.In this paper, there are two deficiencies in the research process. Firstly, there are few funds in each style combination due to the small number of open-ended funds in China, when making an investment style classification. And in theory, the more samples are conducive to increase the robustness and objectivity of the conclusions. Therefore, the results might be affected. And secondly, the portfolio information of the fund is usually disclosed incompletely. This makes some errors in the calculation of the investment style volatility of the fund.The further research direction of this paper can be carried out in two ways. Firstly, the models of IHSV and UHSV need to constantly improve and perfect. In order further to explore other reasons of the fund’s investment style volatility significantly related to fund’s risk-adjusted future returns, we can also try to measure fund’s investment style volatility in new way. With increase in the sample of the fund, we can structure style index by ourselves, according to the fund in the portfolio of divided style type. So we can describe the tracking error of the different styles fund more precisely that further research and analysis the impact of the fund’s investment style volatility on the Fund’s risk-adjusted future return after adding the tracking error.