Research On FOF Portfolio Construction And Risk Measurement

Facing the unpredictable changes in the domestic stock market,ordinary retail investors do not have a good grasp of the financial market cycle and the knowledge of investment.Blindly jumping on the bandwagon causes the majority of investors to face higher risks.The emergence of funds spread unsystematic risk from the aspect of professional,scale and others,but also have some other problems such as high uncertainty,how to choose the fund managers,which type of fund investment and so on.The emergence of FOF makes more risk aversion investors have found the new direction to invest.It is called "Fund of Fund".It has the characteristics of fund which is professional,efficiently spread risk and overcomes the problem of high threshold of private equity fund.However,FOF also has the disadvantage such as low yield and double charging.In this paper,based on the angle of gradual rise of FOF in China in recent years,we assume that we can construct FOF investment portfolio in some ways by ourselves so as to further spread unsystematic risk.Finally,we analyze the risk of FOF portfolio and evaluate its performance through the models.In the first part of this paper,it introduces the theoretical knowledge of constructing portfolio and the measurement of risk.In the empirical research,we refer to GF Securities' series of reports published in 2017 and use IC value method to select the fund to construct FOF.With reference to the existing types of funds in the financial markets,this paper constructs three types of FOFs: stock-type,hybrid-type and bond-type FOF portfolios.After determining the selected funds,using Eviews to analyse the basic information of the data and construct the GARCH models.Then use R language software to fit the correlation between the portfolio through the Copula model to obtain the related Copula parameters.Finally,the VaR model is calculated by the method of Monte Carlo simulation to determine the FOF portfolio risk.The RAROC method based on VaR is used to determine the FOF performance.This paper is an exploratory essay.The article returns to test the value of VaR reflects the size of the risk of the three portfolios,in line with our daily understanding of financial assets.This paper theoretically affirmed the positive role of IC values in the construction of FOF portfolios,but the specific situation needs to be further analyzed in detail.Whether this method is widely used in the fund market or if there are other better investment portfolios also needs to be tested in practice,this article simply provides a way for ordinary retail investors to select funds.Of course,this paper also has some shortcomings.First,when choosing a model,it does not conduct multi-party comparison.Instead,it directly selects the tGARCH model and the tCopula model.Due to the large number of models involved in this paper,in order to highlight the direction of the research,the selection of these two models refers to daily experience and lots of articles.Second,in this paper I didn't consider the charging of FOF in real life when building a portfolio,hope that can be improved through further study.