Study On Style Drift Of Funds Based On State Space Model

In recent years, China's capital market has made a series of remarkable achievements and success. Steady growth of the capital market is of great helpful for the fund industry to develop healthier. Nowadays, with the release of the fund market and innovation of a variety of products, China's fund industry has opened up a new path of development. As of December 31,2015, there are about 103 fund companies in the market, including 681 stock funds,1368 hybrid funds,878 bond funds,159 LOFs,129 ETFs, and 135 QDIIs. Funds have gradually become important institutional investors of the capital market and an important channel for ordinary investors to the financial markets. Ordinary investors lack financial expertise to manage their treasure, so they often choose to find the right funds according to their risk preferences. But in fact, style drift of funds may occur suddenly, so that investors'expectations will mismatch the actual, which resulted in the information asymmetry between investors and funds. Therefore, to know more about fund style drift can make market information liquidity and shed light of investors and regulators into new directions.This paper aims to understand more about fund style drift. To carry out an empirical research by constructing a fund style model based on state space model, and then we use statistical method to test the constancy of fund style. In order to know about the exact effect of fund drift, we estimate the fund coefficients dynamically. So we can analyze the reasons for this style drift occurs and its impact according to the estimation results. At last, this paper propos some follow-up research to overcome the existing problems.This paper is divided into six chapters:the first chapter describes the background, research methods and ideas, innovation, and basic framework. The second chapter introduces the concept of fund style drift, return-based style analysis and holdings-based style analysis. Then we provide a solid theoretical basis for style study by introducing portfolio theory, efficient market theory and so on. Finally, this paper tells us about what domestic and foreign scholars have done on the study of fund style. The third chapter is about fund style analysis model. First we choose to build up a state space model to analyze fund style drift dynamically, which will perform better than traditional models. And then to build up the weak, semi-strong and strong style analysis model base on state space model. The forth and fifth chapter is simulation and empirical analysis. We construct two sets of simulation to test the validity of the model we propose before, and then to estimate the fund style factors by using real fund data. After all, we can find out the exact reason why fund style drift. The last chapter is summary, we show up the future directions of this paper in accordance with the limitations of the study.This paper may have some innovations. The first is the judgment on style drift, this paper attempts to introduce the method of statistical method to test whether fund style drift or not, which can create a precise criteria base on mathematical statistics. The second part proposes new research methods. In order to overcome the shortcoming of portfolio based style analysis model, we try to introduce the state-space model to analyze fund style in a dynamic way. To extend the applicability of existing models by adding some constriction, so that we can build a set of weak, semi-strong and strong form style model based on state space model that are more reliably.