China's Fund Managers To Replace The Empirical Analysis

Compared with foreign mature financial markets, Chinese fund companies seems more likely to change their top managers. According to the statistics, in the year of 2003, 2004,and 2005, the turnover rate of the Chinese funds's managers amounts to 49.3%, 49%, and 40.9% respectively. The average duaration of employment is 1.28 years, 1.35years, and 1.35 years respectively. The maximum of these employment period amounts to 5.01 years, but the minimum is just 14 days. In the year of 2006, among the total 272 funds, the turnover rate is 51% if the new issued funds are not included. According to statistics from MorningStar, the employment duration of fund managers amounts to 5.55 years in the United States, and 3 years in Australia. More than 60 percent of European fund managers have a employment duration of more than 4 years, and less than 3% of them have a employment duration shorter than 2 years.What have caused such a frequent turnover of top fund managers in China? Related documents have done positive research into indes such as choosing stock ability and time selection ability of top fund managers, and found that turnover of manager have positive effects. However, such kinds of research in domestic papers do not get the same conclusion. In order to get rid of other factors such as market factor, in this article, filtered return rate is defined as return rate on fund's assets minus base return rate. Such a filtered return rate is used to weight the performance of the managers of the funds. Among the fund which have changed their managers in the year of 2006, I have selected 8 out of them according to some specific standards.In this article, I have computed the daily filtered return rate of these selected 8 funds during 60 working days before and after the date of the position turnover. A positive analysis is conducted based on thesedata. In addition, these 8 funds are grouped as A group (ranked as higher position) and B group (ranked as lower position). The total 120 working days are cut as 12 spans, with each span including 10 working days. In this article, I have computed the average filtered return and variance in each span. In addition, cumulative data is computed as well. From the data, an obvious conclusion is that manager's turnover count not enhance the fund's performance. Besides, I have assumed a normal distribution of filtered return rate, and tested the conclusion from the table. From the testing I have verified the conclusion : turnover of manager has little effect on filtered return and causes an enhancement of variance under the degree of confidence of 90%.From the conclusion of the positive analysis, we may have some questions: since turnover of top manager could not enhance the performance of the fund, why it is so popular in China? In this article I bring forward three reasons: both investor and fund company have a strong preference of the ranking of funds, thus funds which have been ranked as low change their managers immediately; star funds manager opt to change their employers because of a better salary(new issued funds want to employ star managers); state has not mature laws and supervision on private collection funds.I bring forward some suggestions in this article to solve this problem: less superstition in ranking should be appealed to the investors and fund companies; a database of employment history should be built to enable tracking the credit of fund company and loyalty of the individual manager; private collection fund should be legalized as soon as possible.