An Empirical Study On The Selectivity And Market Timing Of The Chinese Stock Open-End Funds

With the continuous expansion of the scale of open-end funds,with increasing of number and variety,comprehensive and objective evaluation for selectivity and timing ability of institutional investors is particularly urgent and important right now.From the overseas development situation of institutional investors,the fund has already become a basic tool for investors to effectively participate in securities investment,and the asset management industry represented by the fund is relatively independent of the other financial services industry in the financial markets including the banking,securities and insurance industry,racing together bridle to bridle with those other financial services industry in the financial markets.Especially the importance and influence of institutional investors in the capital market is on the rise,with this adaptation,the performance of the fund for a long time is subject attracting wide attention from all sectors of society.The initial study abroad mainly focused on the results of the ability of asset allocation(investment performance)research,such as the famous Sharpe 's Performance Index,Turner' s Performance Index and Jensen's Performance Index.Henriksson&Merton(1981)for further in-depth study based on the T-M model,put forward another similar but more simple analysis method that is H-M model.Another kind of research is to study the asset allocation of the fund directly.The representative of the main line of literature begins from Brinson,Hood and Beebower(1986),they study from the perspective of asset allocation of the fund performance,in their study,volatility of total return of fund is decomposed into two parts:time policy(Strategic and tactical)asset allocation decisions(market timing)asset allocation decision,and they found in their the research sample that 93.6%variation total return of fund can be explained by the strategic asset allocation;Ibbotson and Kaplan(2000)had a further study which shows that for how much performance of the fund can be explained the problem of asset allocation,this question cannot have a simple answer,their results show that by the classification of performance difference between different funds,strategic asset allocation accounted for 40%;while at the same time the 90%on average volatility of fund return can be explained by strategic asset allocation.In recent years,the concept of value investment and automatic investment plan has been widely recognized by the market.These two concepts,one is to emphasize importance of the ability of selection,another one is to weaken the importance of ability of active asset allocation.So now the market has been more and more believe that the ability of selection can bring more revenue than the ability of timing,but is the fact like this?If the final result shows that returns by security selection better than the return of timing and the absolute number is large enough,then it can effectively prove the value of value investment and automatic investment plan.Also the result can provide theoretical support for the concept of value and automatic investment plan,so that the value of value investment and automatic investment plan is more conducive to public to accept.The research on the allocation of capital assets not only provides the theory and method for the study of fund performance,but also provides an important way of thinking and analyzing for this paper.This paper applies framework of Brison's article to study the ability of security selection and the ability of active asset allocation of Chinese fund.This paper will use the latest data to explore the fund market,and the truth of Chinese fund's ability of security selection and active asset allocation in recent years.Compared to the study of Brsion,firstly,the data of this paper is more comprehensive.Second,the range of the sample we choose is shrunk to equity hybrid fund,the volatility of this fund is relatively large,which can highlight effect of the selectivity and timing ability on the actual performance of the funds.This paper uses Brison regression method to study Chinese fund management,exploring the ability of security selection and active asset allocation of Chinese stock funds.This paper will use the latest data to explore the fund market,pursuing the truth of Chinese fund market and the truth of ability of security selection and active asset allocation of Chinese stock funds in recent years.Compared to study of Brsion,firstly,the data of this paper is more comprehensive,second this paper will shrink range of sample to stock funds,because the volatility of this fund is relatively large,which can highlight the impact of ability of selectivity and timing on actual performance.China now has 563 funds,among those funds;there are 181 funds that have an establishment of more than three years.In order to ensure the comprehensiveness of the data,respectively.This paper selects the first 25 and the last 25 of list lined by the rank of annual yield of last three years.In a total of 50 funds as a sample.Attributing returns to the various aspects of the investment process according to this framework needs historical data on returns to the appropriate benchmarks,actual investment results and portfolio composition(weights).Wind provided us with recent quarterly data for 3 years,from Jan.2014 to Dec.2016.The result of the study is that the contribution to the total actual return of portfolio of active management is not statistically different from 0 which means that it is most likely attributable to chance.From Figure C,we can see that security selection contributed a return of 1.18%,while active asset allocation contributed a net performance of-1.49%,neither figure is statistically different from 0.Thus,we concluded that active management had no measurable influence on returns or performance of investment plans.This result of this study confirms the truth of fix investment and value investment,however,for our sample of stock portfolio,active management or active investment decisions by fund managers,both in terms of market timing and security selection,did very little contribution to improve performance of investment plans during the 3-year period from Jan.2014 to Dec.2016.Generally it was difficult to find positive explanatory relations between performance and investment behavior,while individual results of each managers' investment plans varied widely.Take an example to explain,such as extra returns appeared to be unrelated to the level of active management.Moreover,many more plans had positive contributions from the cash and bond portions of their portfolios;it seemed to be harder for fund managers to outperform equity benchmarks than bond and cash benchmarks.In order to better specify the contributions of investment decisions to overall performance,a more detailed data of the history of portfolio compositions would be neededThe following is the five explanations why the ability of security selection and active asset allocation of China's securities investment fund is weak.First of all,the fund company as participants in market investment,their characteristics directly affects their own stock.These internal factors including the ability to choose the time,the fund company's ability to research the market,the form of internal organization and power structure,will have a very important impact on the performance of portfolio.Second,the fund manager's choice can be said as the direct embodiment of the ability of fund stock selection and market timing,so it can be said that the ability of stock selection and market timing of securities investment fund largely reflects the fund manager's investment ability.Third,the establishment and development of China's securities investment fund market with serious characteristics of command economics,which still retains the legacy of traces from planned economy to market economy,the needs of reform make the market environment change unpredictably in the system,there are also some rather baffling problems in the process of the reform.To a certain extent,it has some influence on the ability of stock selection and active asset allocation of China's securities investment fund.Fourth,the rise and fall,profitability,volatility,liquidity of market has significant influence on the ability of stock selection and active asset allocation of China's securities investment fund.In the empirical results of some other study,we can see clearly that the securities investment funds in stock market"bull market" showed certain stock selection ability,in the period of stock market has great volatility,the ability of stock selection and active asset allocation of China's securities investment fund is not obvious,in the bear market the fund company may even show a negative stock selection ability.Fifth,securities investment fund funds from fund individual investors,especially the vast majority of funds in the market are current open-end funds,fund investors' behavior on the purchase and redemption of funds have directly impact on available money of funds.Some suggestions for improving ability of stock selection and market timing of China's fund:1.Accelerate the construction of the securities market and optimize the investment environment2.Establish the concept of expert financial management,and improve the investment management of Fund Company.3.Improve the fund management structure to reduce the moral hazard of fund managers.