The Analysis Of Flow-Performance Relationship In China Mutual Fund Market

Mutual funds flourish in the 20th century in the world with the characters of centralization investment, specialist portfolio management, decentralization of risk and stable income. China develops mutual fund from the end of 1980's and gains great achievement.The positive flow-performance relationship is a representative of fund market mechanism. Investor's behavior of buying funds with strong past performance will give the investment companies an incentive to increase their performance. Research on the investor behaviors in initial sale, purchase and redemption of funds is helpful to get more understanding of the fund market mechanism.This essay focuses on the Chinese fund industry and analyses the relationship between cash flow and performance. This essay studies the market behaviors of funds initial sale, purchase and redemption and finds out that the fund performance affect the cash flow of fund assets to some extent. But the relationship is not stable. There are some other factors influence the net cash flow of Chinese funds, such as the structure of fund investor, the less of long-term investment and market intermediate, and the existing of markets noises, which beyond fund manager can control.This essay gives some suggestions to improve funds market mechanism. The means of long-term investment should be encouraged and the channels to sales fund should be extended. The market intermediate should be set up. Powerful information system should be build to provide the investors with information about funds managers and funds market. The supervision to the fund market should be fastened to decrease the transaction fee. All these actions will contribute to an efficient market mechanism, which can improve the flow-performance relationship.The first chapter of this essay studies former researches on flow-performance relationship and form structure of the essay.The second chapter describes the history of mutual fund, China mutual fund market structure and situation to make good understanding of China market.The third chapter mainly verifies the relationship between flow and performance. It makes an assumption of the flow-performance relationship firstly. Then describes the procedure of data calculation. The third part verifies the relationship between the market volume and the market average return firstly. And then study the initial sales market, the purchase andredemption behavior to find out correlation between flow and performance. At the last part of this chapter, it makes reasonable explains to the phenomena in china fund market.The last chapter gives some suggestions to improve flow-performance relationship and develop market mechanism.