The Value At Risk Of Equity Open-end Fund On Its Excess Return In China

In recent years, the open-end funds attract a large number of investors and become an important part of securities market by its profession and diversificaton of investment in China. However, it is no doubt that there exists shortcomings in securities market like immature operation mechanism, imperfect laws and regulations, and so on. They intensify the risk of maket which makes the investors suffer the loss. Therefore, how to identify the risk of open-ends fund as well as the risk on its excess return becomes a hot issue.In this paper, based on the VaR theory, we use normal distribution model, Cornish-Fisher extension model and Garch (1,1) model to capture the the risk of equity open-ends from2010to2012in China. After the Kupiec test, we finally find that the Garch (1,1) model can best represent the distribution of open-end funds’ real yields. Follow the method of Fama-French (1993), divide the open-end funds tinto ten groups individually by GarchNormal-VaR and Asset. Then we can get the VaRHML factor by using the average monthly returns of high GarchNormal-VaR group minus it of low group, and the AssetSMB factor by using the average monthly returns of small Asset minus it of big group. We use these two factors as the independent variables to make the regression of the excess returns and conclude that the VaRHML factor and the AssetSMB factor both have a positive effect on the excess returns in a long horizon. This result shows us that the greater the value at risk, the greater the excess return. And the smaller the assets, the greater the excess return. But in a short horizon, we find that the greater the value at risk, the smaller the excess returns in depressed period while the greater the value at risk, the greater the excess return in booming period.Finally we draw the conclusions as follows: in the long run, investors should choose the funds which have high value at risk and small asset. But under the condition of the depressed period, it is usually that the value at risk of open-end funds on its excess returns is negative which tells us that we should better invest the funds of low value at risk.