Securities Investment Fund Discount Research

Starting in the early 90's, fund trade in China had some 78 funds and 47 fundcertificates at first, with a total enliSted capital of 7.6 billion yUan. Since theProvisional Methods on Administration of Securities Investment Funds in China wasissued by Securities Committee, the St8te Council in September l997, the domesticsecurities market has ushered in "an era of new funds". By the end of l999, therehave been up to 22 new funds managed by l0 funds manapement companies andlisted on the market. By October 2000, ll more old funds formed in the early 90'shave also been transformed into securities investment funds through assetdisplacement. NoW there are a1tog6ther 33 securities investment funds in China,showing a booming in fond investment.Howevef, in the process of vigorous growth of funds, there have also appearedphenomena calling fOr serious consideration. At present, all the funds in China areof close-end securities inveStment funds, whose market prices in secondary marketare either of discount or premium compared with their net asset values. In the eariyperiod of fund trade, as most investors had only some vague ideas of suchinvestment tool, the market prices of funds 8enerally enjoyed high premium. Astime goes on, discount in market prices prevailed in funds trade. Now4days, fundswith sizes larger than l billion yUan all suffer from severe discount in market prices,averaging over 20% in discount rate. Contrny to this, for those funds with capital of500 Mil1ion yUan or less, the market prices generally enjoy premium and meanpremium rate is nearly 20%.As study shows, price discount in the trade of securities investment funds iscommonly occurred even in highly matured market such as in U.S.A. Howevef, the'discount rate is usually around l0%. Then, why can price discount and pricepremium co-exist in our close-end securities investment funds? And why should thediscount r8te be much higher than that in matured funds markets abroad? Focusingon these questions, this thesis unfOlds its theoretical and positive research andanalysis. The main purpose is to explore the rationality of price discount in the tradeof close-end investment funds in our country as well as the special reasonsunderlying the high discount rate. Furthermore, the thesis proposes a number ofcountermeasures in a hope to promote the health growth of fund trade in our country.The thesis is made up of fO1lowing 4 chapters;Chapter I Theories on Price Discount in the Trade of Securities InvestmentFundsThis chapter introduces briefly basic concepts re1ated to price discount in thetrade of securities investment funds, general infOrmation on price discount in thetrade of close-end bond funds in U.S.A. and two major theories on price discount infund trade, namely A8ent Theory and Market Segmentation Theory.Chapter II Analysis on Factors Influencing Price Discount in the Trade ofSecurities Investment FundsFirst, the chapter explains that the market price of a securities investment fundis primarily based on its net asset value. At the meantime, it is finally decided bymarket under the infiuences of such factors as supply-demand relations, economicconditions, market back8round and pefformance expectations etc. Then, the chaptercarries out a general analysis, combining those oUter factors with the characteriSticsof fund itself and security market.Chapter Ill A Research on the Price Discount in the Trade of SecuritiesInvestment Funds in ChinaAs the key part of the thesis, the chapter firSt gives a positive analysis on thetrpes of price premium of close-end securities investment funds in our countrywhich leads to the conclusion that the premium in fund trade is only momentary It isresulted from such unique factors as the false concept of inveStors, the highspeculation in the market, small sizes of funds etc. Then, from the positive point ofvieW a detailedlcase study is 8iven to the price discount in the trade o...