The Emprical Research On The Relationship Between China Open-end Fund Performance And Market Liquidity Risk

In recent years,there have been frequent crises related to the liquidity of securities financial market,and it has become more and more important to understand the relationship between market liquidity risk and financial products.As the mainstream of the fund industry,open-end fund has a more complex relationship with liquidity risk than traditional financial products such as stocks and bonds due to its characteristics.Due to the liquidity commonality,market liquidity is in systematic changes and its risk cannot be diversified.Therefore,liquidity risk is a kind of systematic risk.The liquidity risk of an asset is the sensitivity of its price to unexpected market liquidity shock,namely the liquidity beta.Liquidity beta is essentially the covariance between asset return and market liquidity shock.Based on China’s actively managed stock type and mixed type slant open-end fund data,the thesis firstly calculates fund liquidity beta through the rolling regression method,then uses the combination analysis method and Fama-MacBeth regression method to explore the relationship between the historical liquidity beta and the fund performance.The thesis then digs the inner reasons of the relationship in the direction of stock holdings’ risk taking and managerial skills.The research documents that: liquidity beta has a predictive effect on fund performance.Funds with high liquidity beta have better performance in the next period.However,the outperformance is not entirely due to the exposure to the liquidity risk premium in equitities,and a large part of it is comes from the fund’s active management ability.According to the positive and negative directions of liquidity shock,the market can be divided into upward and downward liquidity markets.It is found that the overall outperformance mainly comes from the period when the market is subject to positive liquidity shock.This period was characterized by upward liquidity,reduced market friction and improved efficiency,so stock prices could reflect market information in a more timely manner and the mispricing caused by noisy trading could be corrected in time.This paper argues that skilled funds can seek mispricing stocks more accurately and then arbitrage more often in the upward liquidity market,which introduces higher alpha for the fund.Moreover,because the outperformance and liquidity shocks change in the same direction,in turn it makes contribution to the liquidity beta of skilled funds.In general,on the one hand,funds with high liquidity beta have liquidity risk premium;on the other hand,skilled funds can generate higher beta through the utilization of mispricing under different market conditions.This article confirms the direction of the liquidity risk impact on fund performance,and studies the channels how liquidity risk affects fund performance by taking managerial skills into consideration.The article contributes to the study of the relationship between market liquidity,investor behavior and mispricing in the meantime.