A Study On Risk Management For Index Funds

Index fund originated in the United States, and developed rapidly in foreign countries. Also Index fund is the main way that most institutional investors chose for investment. But the index fund appear relatively late in our country, and the development degree are different from other countries a lot. Based on the present situation of the development of index funds in China, and the efficient market hypothesis theory, prospect theory, downside risk theory, we analyzed the advantages and disadvantages of index funds themselves and how index funds exist and can make investors benefit from the basic logic. It is concluded that the current index fund in our country face with the major risk is downside risk, and to deal with the risk of investment is use the way of Dollar Cost Averaging(DCA). Through empirical model and analysis, our study concludes that the Dollar Cost Averaging index funds can obtain the time value of money. We use the inspection about half of variance to describe the downside risk that the index fund faced with, then use the index fund transaction data regression analysis, based on this, give advances about the development of index fund in China.In this paper, the first chapter is introduction. In this section we mainly introduce the background of the research, the significance of the research, concept definition, framework, and so on. The second chapter is the theory was reviewed. This section includes three parts, downside risk、index fund and DCA. Downside risk is the mainly risk that the investors dislike in the securities market, also it is the mainly risk that the index fund faced with. The way to deal with downside risk is chose DCA for investment. In the third chapter we firstly describe the development situation about index fund in the world and China, then analysis the advantages and disadvantages of index fund themselves. Based on this we pointed out how to carry on risk management about index fund. The fourth chapter we mainly introduce the empirical analysis of Dollar Cost Averaging. Through the model we proves that DCA investment way can help us obtain the time value of money. We use the index fund from 2005 to 2015 as samples, with these data we describe the effect that how DCA can deal with downside risk. In chapter 5 we mainly describe the conclusion and significance of DCA, also put forward Suggestions to our country development of index funds. Chapter 6 is about the conclusion of this study.The innovation point of this paper includes:(1) In this paper we put forward that the downside risk is the biggest risk that the index fund faced with, which the previous literature rarely mentioned. This article explicitly put forward that the biggest risk is when the stock market in a bear.(2) We selected the samples for a long term,which experienced a full market cycle, through which we explore the earnings of index fund that chose DCA for investment.(3) Through the analysis of the features of index funds and the current situations in the stock market, we give advices about DCA for index fund in our China.