Empirical Study On Style Drift Impacts Open-ended Fund Performance In China

"Fund Law" Enacted in2004laid the legal foundation for the implementation of thedevelopment of China’s fund industry, and China’s fund industry supervision are more andmore perfect, fund investors’ behavior gradually standardized and our fund industry hasentered a new stage of rapid development. The rapid development of the fund industry inparticular, the rise of open-end funds make fund industry has become the fastest growingfinancial industry sub-sectors. Meanwhile, with the increasing number of funds, the fundindustry’s competition is also becoming increasingly fierce, in order to meet the needs ofdifferent types of investors, fund companies launch different investment styles andinvestment strategies of the Fund in order to distinguish it from other funds. But fund doesnot stick to their claims of investment style in the actual investment funds, and it is fundstyle drift which studied in this paper. Fund investment style drift is not only contrary to thespirit of the contract funds, and it allows investors to bear the risks beyond their ability. Soit has important practical significance to identify our fund’s investment style drift and howit influences the performance of the fund investment.Firstly, I write the related literature of the domestic and foreign about fundinvestment style drift and the way of fund investment style drift influences the fundperformance; Secondly, I use information economics and behavioral finance theorydescribes on the causes of style drift, and I introduce fund investment style afterwardsidentification method, and then I use the Gruber regression model to analysis open equityfund investment style drift; Thirdly, This article focuses on the theory of style drift effecton fund performance, and use Gruber alpha index in the model and the Sharp ratiomeasures on fund performance after style drift and subsequently I analysis the reasons forstyle drift.This article studies show the following conclusions: First, our open-ended equity fundsin three periods after the financial crisis prevailed style drift, and the fund showed no fixedinvestment style. Second, the fund generally exhibit large and mid-balanced style in the risein post-crisis period, the fund style has been divided in shock consolidation period, and thefund style mainly shows for medium and large decline during the growth plate, and thereare styles convergence. Third, empirical analysis the investment style drift impact on theperformance shows that when the market rises style drift can help improve fundperformance, and style drift will weaken the fund performance in the shock period and thefall period.