On The Application Of VaR In Performance Evaluation Of Securities Investment Funds

With the rapid development of securities investment funds, especially the openfunds, fund investment has become the most important financing pattern, and theperformance evaluation of securities investment funds has been the main concern forinvestors and fund companies. Therefore, it is of great significance in finding anappropriate method to measure the performance of the funds. But the theories on howto choose the evaluation index have not reached a consensus. Generally speaking,Sharpe index, Treynor index and Jensen index are the traditional famous methods toevaluate the performance of securities investment funds. These classical tools canmeasure the performance of securities investment funds to some degree, but they alsohave some disadvantages. Therefore, this paper brings about the value at risk (VaR)method on the basis of the Sharpe index and analyzes the application of VaR in theperformance evaluation of open funs in China by empirical research.The risk-adjusted return on capital (RAROC) method in the paper is also calledVaR-Sharpe index, and the index measures the excess profits brought by every loss,the larger the better.This paper choose different types of weekly fund return rate provided by severalfund management companies from1st January,2005to31th December,2011assamples. According to the model of RAROC we used the VaR-Sharpe index toevaluate the performance of investment. Therefore, the down risk method is used inperformance evaluation, and the results were analyzed through different perspectivesand compared with the traditional method of fund performance. Single fundperformance, result levels of different fund companies and results of different type offund were all analyzed and compared with each other with traditional assessingmethod. Through the above analysis the following conclusion was drawn, theperformance ranking of every sample fund was better than the market portfolio eitheron VaR or on the three traditional methods. And the ranking of performanceevaluation based on VaR-Sharpe are obviously positively related to the traditionalranking. During the bull market period, σ and VaR are both significantly larger thanthose in the bear market, which means it often lurks a greater risk in the up marketrather than the down market. Besides, bond funds in the decline market stages showedgood resilient.