| The open-ended fund market in China has been developing really fast,especially in recent years,and it has become one of the most important institutional investors in Chinese financial market.Within all of the open-ended funds,the equity open-ended funds are the most common and they have been playing an important role.Meanwhile,they are the most actively managed funds and have the highest turnover ratios.The literatures regarding the effect of turnover on fund performance have not arrived at a common conclusion yet,and in China we do not have enough study which focus on the turnover ratio,including its effect on fund performance and the influencing factors which decide it,all we have are some news broadcast whose results are far from convincing.Therefore,this study is aimed at researching the relationship between fund turnover and fund performance and exploring how the extent of stock market mispricing can influence fund turnover.It chooses 258 actively managed open-ended funds which start up before January 1,2010 as sample,and uses their half yearly reported data from year 2010 to the middle of year 2018,which contains 17 report periods.This study is based on the hypothesis proposed by Pastor(2017),which states that fund managers are skilled of exploiting potential profit opportunities,therefore more profit opportunities will lead to higher turnover ratios.This study first establishes the fund turnover-performance model,and several control variables are chosen based on existing literatures.After Hausman Test,this study uses panel data regressions which consider both found fixed effects and year fixed effects to do estimation.Since frequent trading brings along higher trading costs and it may take time for the profit opportunities to take effect,this study finds that the lagged fund turnover is a better explanatory variable than current fund turnover for fund performance variation.After the study that is based on full sample,this study then uses subsamples to do the regressions again,and the funds are split into several categories based on its investment style and fund size respectively,including value funds,blend funds and growth funds from investment style categories,along with the middle-size funds and large-size funds from fund size categories.Then the results show that the estimated coefficients of lagged turnover can vary according to different categories of funds.In addition,since funds face similar profit opportunities and this study is based on the hypothesis that turnover comes from profit opportunities,so that different funds can share similar turnover ratios.After verifying the strong correlation between funds,this study further explores the effect of average fund turnover calculated from similar funds on fund performance,and finds that with the increase of similarities between fund and the fund group,the average fund turnover calculated from the fund group can explain more of the fund’s performance variation.This study also proves that the larger likelihood of stock market mispricing,which is measured by mispricing proxies such as investors’ sentiment,market liquidity and volatility,the more profit opportunities it can bring and the higher corresponding turnover ratios.This study sheds lights on the relationship between fund turnover and fund performance,and provides with a new perspective to explain the formation of fund turnover ratio.The results of this study can also give some enlightenments to the fund regulators,fund companies and fund investors. |
