Analyzing The Redemption Risk In China Monetary Market Fund

With the development of the financial markets, money market funds being the leader of financial innovation, have attracted more investors. In 2013, the online funds have experienced a dramatic growth. The most representative fund "Yu E Bao", founded in June,2013 has become the largest money market fund and 7th largest around the world in 6 months. Low risk, low charge and high liquidity have turned money market funds to one of the most significant financial instruments. Online financial innovation and T+0 have greatly promoted the convenience of money market funds. However, money market funds are not risk-free. The redemption risk of money market funds have brought new challenges to the regulations and management-Analysis to the redemption risk will greatly benefit the regulators, fund managers and investors.Recent researches on redemption focus on equity and bond funds while money market funds are not fully studied. Many researchers have encountered the redemption myth that redemption rate increases when yield grows. Money market funds differs from other open-end funds in many perspectives such as the subject of investment, net value and size. Most researches on money market funds are based on experience abroad and lack of empirical research. This research starts from open-end fund redemption and gives an empirical research on redemption risk of money market funds in China. The research builds up econometric models and gives the multiple regression by 80 money market funds panel data from 2012 to 2013. The model calculates the significance of different parameters and finds that the net redemption rate is affected by the yield rate and scale of funds. The redemption rate in prior period also affects the current redemption rate while T+0 mechanism contributes little to redemption. Through a series of theoretical,empirical arguments and empirical testing, the research finally gives suggestions to prevent redemption risk of money market funds.