Research On Chinese Investment Fund Performance Evaluation

The evaluation of investment fund performance has been one of the main developments of modern portfolio theory. In China most studies employ the technique developed by Jensen (1968) that compares a particular fund's returns to a benchmark portfolio of equal risk. In this paper, I will originally apply the unconditional measures in analysing investment fund performance in China 2000 - 2002. However, the measures of fund performance are known to suffer from a number of problems in practice. In particular previous studies implicitly assume that the risk level of the portfolio is stationary through the evaluation period. That is unconditional measures of performance do not account for the fact that risk and expected returns may vary with the state of the economy. Many of the problems encountered in previous performance studies reflect the inability of traditional measures to handle the dynamic behaviour of returns. As a consequence Ferson and Schadt (1996) suggest an approach to performance evaluation called conditional performance evaluation which is designed to address this problem. Therefore this paper farther utilises such a conditional measure of performance to compare with unconditional model. I will analyse the implications of using conditioning information variables on Chinese investment fund performance and on the persistence of that performance. I find an evidence of superior performance. Furthermore, Chinese fund performance persistence is not evident.