Open Mode Fund In Our Country And Its Study On The Relationship Between The Earnings

Along with the development of China’s capital market, as the investors become more mature, the scale of China’s open-end fund is rising. At the end of2011, the total net value of the open-end fund in China was2.07trillion Yuan,175times the size of the early establishment of the fund. Companies are always in the pursuit of a larger scale, because a larger scale means more income, but when the scale reaches a certain level, some funds will choose to suspend expanding fund size. Whether size erodes the performance of the fund aroused our thinking. With the expansion of the size of the fund, the company has more income to buy the data of listed companies, to employ or train investment staff. Also with the rising size of the fund, certain expenses will not increase with the same proportion which will bring economies of scale to the fund. However, the rising scale will bring many problems, such as lack of enough high-quality investment targets, larger scale of fund means that fund managers will face more liquidity constraints, making the fund manager cannot quickly make cash and share converted to each other, which may lead to missing the best time to sell or buy shares. At the same time they are confronted with the price impact, which will increase the cost of shares. Meanwhile, the rising size of the fund may be a more difficult problem to management which will also erode the performance of the fund. This paper will first describe the relationship between fund size and its performance, pointing out that the fund size and performance showing the inverted "U" shaped relationship. Then make the explanation from the view of economies of scale, and liquidity constraints. We will research and make the corresponding empirical analysis. We will select the fund expense ratio to research the economies of scale of the fund, and by classifying the large-cap fund and small-cap to find liquidity constraints. The article gives the final interpretation of the results as follows:to the fund of small size. the impact of liquidity constraints may not be very obvious. They may have lower positions of the stock than the large-scale fund. At this stage, the fund’s economies of scale play an important role, as the scale increasing, the fund’s expense ratio will be reduced which gives positive impact on the performance of the fund. However, when the fund size becomes larger, due to diminishing returns to scale and the liquidity constraints, eventually leading to the decline in income of the fund.