Fund Performance Evaluation Studies

Security Investment Funds (SIFs), an advanced institution arrangement and attractive financial instrument, received much attention from investors around the world. The performance of SIFs not only reflects fiduciary duty, but also offers decision-making useful information. It is a manual for fund manager and a guide for fund investor. It is very important for the development of fund industry and the whole security market. Firstly, this dissertation discusses the advantages and the disadvantages of the theory and methodology in term of chronicle sequence. Secondly, the paper tests the decision usefulness of all methods in China security market. Finally, the author brings forward some advices to the healthy development of SIFs in China. The content is organized as fellows:Section one is an introduction to the whole dissertation. This section expounds the motivation of the research, the meanings and classification of fund. Following the review of mutual fund development in The United States and the SIFs development in China, the aothor deduces the trend of fund industry and the broad prospects of China SIFs. The objective of fund accounting is fund performance evaluation, reflecting fiduciary duty and offering decision-making useful information. Fund performance evaluation is the guide of resource allocation and the driver of security market efficiency.Section two analyzes the advantages and disadvantages of each fund performance method. Holding Period Return (HPR) explains the expense and earnings controlling ability. Although we can compare different fund performance with different ages according to this index, we cannot understand what originates the fund performance: market, risk assumed or fund manager ability?Treynor index, Sharpe index and Jensen index are classic methods of risk adjusted index methodology. Concerning systemic risk only, Treynor index and Jensen index may transfer misleading information. Concerning systemic andIVunsystemic risk, Sharpe index can interpret the diversification ability, but cannot tell how much the fund surpasses the benchmark. Absorbing risk into performance evaluation is the most important contribution of risk adjusted index , nevertheless, it is too rough to tell the reason why the difference exists.The innovation of RAROC index is the method to measure risk, value at risk (VAR). The whole VAR can be decomposed into different asset VAR and different instrument VAR, it is convenient for different departments to manage corresponding risk. However, the risk calculation of VAR depends on the normal market, and can not deal with outburst and small probability event, and ignore the right partial distribution of return density function, which has important information to investment decision.Eclecticism is applied in measurement of fund risk in Morningstar fund ranking. The part less than the benchmark return is recognized as risk, which is consistent with the feeling of investors. However, without strict logic relation, the complex sequence of calculation brings forward illegibility.The huge progress of fund performance evaluation from visual angle of performance component is that it tells not only the difference, but the reason also. Eugene Fama decomposed fund performance into two parts, selectivity and unsystemic risk controlling ability. Selectivity scales the extra of actively managed portfolio over randomly managed portfolio with same risk. The theory basis of the performance component is still the Capital Asset Pricing Model.Fund manager can achieve excellent performance through forecasting the trend of security market correctly. In the condition of anticipation of bear market, fund manager can shun market risk through decreasing beta. They will enjoy the bull market through increasing beta with anticipation of bull market. Classic method of measuring timing ability includes T-M model and H-M model, which can examine the timing ability through analyzing the change of beta.Section three concentrates on the decision usefulness of each performance r...