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The performance of Chinese equity securities investment funds
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Date
2017
Authors
Gao, Jun
Journal Title
Journal ISSN
Volume Title
Publisher
University College Cork
Published Version
Abstract
Using a dataset of all surviving and non-surviving Chinese equity securities investment funds between May 2003 – May 2014, this study examines numerous risk-adjusted performance models in three classes: (i) unconditional models, (ii) conditional beta models and (iii) conditional alpha-beta models. Findings from all performance measures suggest no evidence of statistically significant stock selection skills on average. Higher frequency weekly data are employed to improve statistical estimation – a difficulty with much of the extant work in Chinese securities investment funds. Based on the statistical significance of the individual parameters and the Schwartz Information Criterion (SIC), a single ‘best-fit’ model from each of the classes is selected This study also evaluates the performance of funds using a bootstrap methodology to distinguish skill from luck in performance. Unconditional, conditional beta and conditional alpha-beta performance models are considered. This study also examines the performance persistence of Chinese funds by applying the recursive portfolio formation methodology of Carhart (1997). The results from sorting funds either by past 4-factor alphas or by t-statistics of past alphas suggest that the top ranked decile portfolio yields statistically and economically significant forwarding looking alphas. In addition, this study applies the recursive portfolio formation methodology for alternative ‘smaller’ portfolios of a fixed size and finds that almost all the smaller portfolios of past winning funds produce positive and statistically significant forward looking alphas. Hence an active portfolio strategy of selecting a small number of past outperforming funds may earn positive abnormal returns. This study also examines the market timing performance of Chinese funds using the parametric tests of Treynor-Mazuy and Henriksson-Merton as well as the Jiang (2003) non-parametric test. Based on the non-parametric approach, the study finds that most funds do not time the market. This conclusion is robust when controlling for publicly available information in evaluating ‘private’ timing ability.
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Keywords
Fund performance , Emerging market , Chinese fund market , Market timing , Performance persistence , Bootstrap strategy
Citation
Gao, J. 2017. The performance of Chinese equity securities investment funds. PhD Thesis, University College Cork.