Empirical Research On The Timing Ability Of Chinese Open End Funds Based On The MV-GARCH Model

Chinese open end funds have developed rapidly since close end funds turned into open end funds. The net value of market, the numbers of funds, and the numbers of fund management companies have been increasing. Although open end funds provide new approaches to invest, investors have the problem about how to choose funds when they face so many kinds of open end funds. So, appraising fund performance objectively and scientifically is necessary. This thesis uses multivariate GARCH model to research the timing ability of Chinese open end funds. The aim is to examine whether Chinese open end funds have the market timing ability. This is important for the evaluation of fund performance and the choice of investors.This thesis takes the market excess return, the size factor, the value factor and the momentum factor in the Carhart model as risk factors. Then, it constructs a multivariate GARCH model to research whether Chinese open end funds has the timing ability and whether the four risk factors affect the timing ability of Chinese open end funds. The fund samples contain stock funds, bond funds, and mixed funds. To compare the difference of multivariate GARCH model and the traditional timing ability models, the thesis also constructs unconditional model and conditional model based on the instrument to do the empirical analysis. To compare the difference between three timing ability measures, the thesis use Friedman nonparametric test to compare the results of four risk factors and three timing ability measures.The thesis finds that bond funds have the best performance. They show both positive selectivity ability and market timing ability. Stock fund show positive selectivity ability but negative market timing ability. Mixed funds show positive selectivity ability. Only when the conditional model based on instruments and the multivariate GARCH model are implementing under the condition of multivariate risk factors, mixed funds show positive market timing ability. The market excess return, the size factor, the value factor and the momentum factor have significant effects on the timing ability of Chinese open end funds. They should be taken into account when appraising the timing ability of Chinese open end funds. The conclusion of multivariate GARCH model is basically the same as the conclusion of the other two models. What’smore, multivariate GARCH model makes the timing ability of stock funds and mixed funds look better relative to the other two models. These prove that multivariate GARCH model is applicable for the evaluation of the timing ability of Chines open end funds.