Research Of Fund Performance Evaluation Based On Behavior Finance

During the four years since mutual funds debuted, mutual funds have emerged as one category of the most important institutional investors in Chinese securities market, and meanwhile, as the rising tools of investment, mutual funds' performances become one of the most crucial factors which influences the trend of the whole securities market. With the increase of fund categories, today the fund performance measurement draws a lot of attention.Efficient Market Hypothesis (EMH) is the base of Traditional finance theory. However, with the accumulation of all the abnormities on finance market, the deviation between models and actual circs has made the rational analysis from traditional finance theory get into an awkward circumstance. 1980s, Behavioral Theory has been rising gradually and it wobbles the authoritative status of CAPM and EMH .Taking the psychology of investors into account, this thesis brings forward a new measurement of fund under loss aversion. This new measurement uses CPT (Cumulative Prospect Theory) of Behavior Finance for reference, and then quotes VF(Value Function) and CWF(Cumulative Weight Function),replacing the traditional probability weight. It is a measurement of risk-adjusted, imitating Sharpe Index.Firstly, the paper discusses the relevant issues of fund performance measurement from various perspectives, then reviews and summarizes the theories and methods in this field systematically. Based on that, the paper provides a new method to measure the current 6 Index Funds performance in China, using both descriptive statistics and empirical analysis method, and compares with the traditional performance measurements.The Chapter 1 of this paper introduces the definition of security investment funds and performance measurements; in the Chapter 2, this paper reviews some traditional performance measurements on security investment funds; the Chapter 3 is the theory background which is called Behavioral Theory of the new method, and italso elicits the keystone of this paper(the Chapter 4)——A risk-adjusted evaluationmeasure of fund performance based on loss aversion. The Chapter 5 is the empiricalpart, including descriptive statistics and analyses of charts. The conclusion is the last chapter, summarizing the comparing result between the new method and the traditional funds performance measurements, and the deficiencies existing in the new method.Nevertheless we can see it is rather difficult to analyze Chinese funds' performance efficiently. First, Index Funds in China is still in its elementary phase, and the number of funds is limited. Second, some Chinese funds are blend, which are an admixture of stocks and bond, not only follow one benchmark, so we should also consider the incoherence between funds and benchmark indices. However, the unique features of Chinese funds, such as high comparability, relative simplicity and no survivorship bias, also provide many advantages for this paper.