An empirical study on mutual funds performance and performance persistence in China

Abstract

The debate whether mutual funds could provide superior performance compared to the market and whether mutual funds could perform persistently has become on-going issues since the 1960s. Many studies have attempted to evaluate mutual fund performance using a variety of performance measurement techniques and adjustments for risk. Extensive researches have been conducted in mutual fund performance and performance persistence on the U.S. markets while some studies focused on U.K., Australian and Hong Kong financial markets. However, no similar studies have been conducted on the performance of mutual funds in the Chinese financial market This study investigates equity mutual funds’ performance and performance persistence in the Chinese financial market. First, single-index and four-index models are used study to evaluate mutual fund managers’ selective ability in China. Second, Treynor and Mazuy (1966) and Henriksson and Merton (1981) market timing models are used to investigate whether mutual fund managers in China could have market timing ability. In addition, mutual funds performance persistence in both short-and long-terms are tested by applying non-parametric and parametric models. The Chinese financial markets could provide an opportunity to test the robustness of the conclusions from prior studies on mutual fund performance and performance persistence. The results from this study reveal that the equity mutual fund managers in China have selective ability to earn excess returns, but do not have market timing ability. In addition, the non-parametric and parametric tests from this study demonstrate that equity mutual funds in China could perform persistently in the short term but not in the long term.