1. Scope/ rational of project
The securities investment fund in china actually is quite similar with the mutual fund in USA. China is one of emerge markets in the world. Compared with the developed market, it still has so many problems that have to research and analyse. Mutual funds started in the second half of the 18th century in the Netherlands ( Rouwenhorst, 2004). In the 21th century, the number of mutual funds in the U.S. had already exceeded the number of securities listed on the New York Stock Exchange. Investment company institute (2002) mutual fund factbook reports more than 8,000 mutual funds in the U.S. in 2002, compared to 2,800 firms listed on the New York Stock Exchange. Madhumathi and panwar (2006) defined that mutual funds is one very interesting topic that not only to researchers in the world, also to all of investors. They thought that the investors preferred to invest the mutual funds as a investment option because mutual funds is a medium-to-long term investment option. That the reason why that the funds are popular for investors.
Over the past ten years, china securities investment funds had a huge development in china. By the end of 2001, there are 14 securities investment fund management companies, and those companies operated and managed 48 closed-end funds and 3 open-end funds. The total value of closed-end funds are 70 billion yuan. The different types of investment fund occurred due to this situation (Guo, 2004). With the speed of development of securities investment funds, there are a lot of problems during the process of development. Especially in china, due to the time of development of securities investment funds is not too long, the lack of theoretical research about securities investment funds, the lack of knowledge of fund’s function, location and operation mechanism. In the process of operations, some illegal operation occurred in secondary market in recent years. Otherwise, the problem of the internal control of securities investment fund was exposed. The bellowing problems make a negative effect of the securities investment funds to all of investors in china. Furthermore, those problems influenced the development of securities investment fund in China, even the investment fund institutes. According to the study on the nature of these problems, the risk analysis and risk management is the most important issue for the development of securities investment funds in China (Pan, 2005).
2. Literature review
Markowitz (1952) proposed the modern portfolio theory-mean-variance model. This model started the research of risk quantification. In the modern portfolio theory, Markowitz provided that the measurement of portfolio risk, which set the return of asset as normally distributed function, the risk as the standard deviation of return, and set a portfolio as a weighted combination of assets. In this model, the return of a portfolio is the weighted combination of the assets’ returns. after Markowitz’s modern portfolio theory, Sharpe (1964) proposed the capital asset pricing model that is widely used in the pricing of risky securities. Capital asset pricing model based on the modern portfolio theory and this model also had all assumption of modern portfolio theory. Capital asset pricing model illustrate the relationship between risk and expected return. Depends on modern portfolio theory and capital asset pricing model, Ross (1976) put forward the arbitrage pricing theory as an alternative to capital asset pricing model. The arbitrage pricing theory had some macro-economic factors that can control the price of stock. Since the arbitrage pricing theory need to consider macro-economic factors, this theory is more flexible and more difficult to use. However, there are some limitations of modern portfolio theory. First of all, modern portfolio theory try to reduce...