Using VaR to measure the relationship between return and risk of mutual funds in China

Abstract

This paper uses VaR to measure the risk of mutual funds in China and to determine the relationship between the returns. A sample of ten Chinese mutual funds over a three-year period, from 2010-2012 was examined for the significance of the continuity in funds’ performances. The proposed models also indicate whether psst risk level still has an influence on the future mutual fund returns, and how long this influence will last. From the models, conclude that past VaR of one-week lag reflects the risk level of the mutual fund. The mutual fund manager can reduce potential losses without changing asset allocation.