Open-end Fund Investors Asset Allocation Empirical Research

In America, Mutual Fund is the one of the biggest financial institution, which charges of the huge fund asset. In 1999, the asset size is 6.84 trillion dollar, which exceed the asset size of commercial bank. Almost one half of the household have the fund accounts, and approximately 20 percent of household financial asset is invested in mutual fund. So the effects to the market due to investors' demand for the financial asset are gradually the research focus. Academician attaches importance to the investors' asset allocation model.Cash flows into different types of mutual funds could be a very good indicator of changes in investors' asset allocation decision. The relation between cash flows and market performance and the asset allocation model are studied by many American academicians. Domestic academicians focus on the net redemption of open-ended funds. Based on the facts that the growth of asset size of the open-ended funds is increased by the new share, the author divided quarterly cash flows into two parts: net sales of the old funds and new shares of the new funds. The thesis focuses on the open-ended funds investors' behavior and asset allocation model. The asset allocation means allocation on stock funds and bond funds.We research the open-ended funds investors' asset allocation in three arrangement. The first part studies the relation between quarterly net sales of the old funds/new shares of the new funds and market performance. In the part, we apply OLS estimation, non parameter test, and Granger causality test and stepwise and so on to analyze the relation. The empirical outputs show that the trade strategies on different type funds including stock funds and bond funds are not same, the trade behavior on net sales of the old funds and new shares of the new funds are not same. We don't find the evidence of the price volatile by investor buying high and selling high, but we find the positive feedback strategies by bond funds investor increase the market volatility. The Granger causality test outcome show that net sales of stock funds is Granger causality to stock maket return, stock maket return is Granger causality to new shares, and the new shars of baoben funds is Granger causality to bond market return.Based on the empirical outputs of the first part, we examine the relation between market volatility and quarterly net sales of the old funds/new shares of the new funds including stock funds and bond funds. We find the negative relation between quarterly net sales of all stock funds and market volatility, and the positive relation between quarterly new shares of all stock funds. We also find the positive relation between quarterly net sales of all bond funds and market volatility, and the negative relation between quarterly new shares of all stock funds. We further analyze the relation between quarterly net sales and new shares of all stock funds and expected and unexpected market volatility, and the relation between quarterly net sales and new shares of all stock funds and market up volatility and down volatility. The empirical conclusion shows that the investors' strategies are affected by the unexpected and up volatility. When the unexpected volatility is higher, investor will allocate less into stock funds and more into mixed funds. Investors are more care of up volatility when redeeming, and more care of down volatility when buying.In the last part, we further studied the relation between open-ended funds investors' decisions and changes in business conditions. We find that open-ended funds institutional investors will allocate more into stock funds than household investors when expected stock market returns are low. But household investors are affected seriously by changes in expected market returns; they allocate more into bond funds when expected stock market returns are low. Institutional investors' asset allocation is set according to the business conditions in a long time, and household investors' allocation is set according to the business conditions in a short time. When the economical cycle changes, institutional investors adjust their allocation gently, but household investors adjust their allocation in a large range. According to the four allocation models by Martin L.Leibowitz &P.Brett.Hammond and our empirical output, we get the conclusion: institutional investors like a rebalancer, who stabilizes the market, and household investors like a holder, a valuator or a shifter, who destabilize the market.