The impact of performance-flow relationship and expected return on the dynamic portfolio strategy of funds - An analysis based on loss-averse fund managers

Under the continuous time financial framework, assuming that there is an asymmetric convex relationship between fund performance and management fund flow, we establish a dynamic portfolio model to analyze the investment strategy of loss averse managers. Firstly, the martingale method under the complete market is used to solve the model, and the terminal value of the fund's optimal portfolio is obtained, we analyze the impact of performance-flow relationship and expected return on the optimal terminal value. Then, using replication technology, we obtain the closed solution of the dynamic optimal portfolio strategy of the fund, and find that the fund outflow coefficient has no impact on the dynamic investment strategy of the fund, the increase of capital inflow coefficient increases the risk exposure of the fund's optimal portfolio. The impact of expected return on managers' investment strategy is related to the market state. When the market state is good, the increase of expected return reduces the risk exposure of the fund, and the managers adopt more conservative investment strategy; when the market state is poor, the increase of expected return makes managers increase risk exposure and investment strategy more aggressive. © 2021, Editorial Board of Journal of Systems Engineering Society of China. All right reserved.