The Performance Evaluation Of Mutual Funds Based On The Fund Flow Adjusted Conditional Model

Since September in 2001, when China's first open-end fund Hua An Innovation was established, open-end funds have got a rapid development because of its high transparency, good liquidity, convenience of investment and other advantages, to gradually replace the closed-end funds as the direction of China Fund Market. Therefore, referring to foreign research results, and improving our open-end funds performance evaluation system, is of great significance both for investors, fund managers and regulators.Little domestic research has studied the conditional performance evaluation models including public information variables. And domestic studies on the relationship between fund flow and fund performance have mainly focused on the effect of fund performance on investors' purchase and redemption behavior, rather than the effect on funds' own performance of the subscription and redemption services provided by funds. Therefore, elaborately selecting public information variables, applying conditional models to assess the performance of open-end funds, and studying the effect on funds' own performance of the investors' subscription and redemption, have both theoretical and practical significance. This also reflects the innovation of this research.The investment performance of open-end funds is researched both using both unconditional and conditional models, and fund flows are considered. In order to assess the performance of equity funds, four assessment methods are used with both monthly and quarterly data, and the most values are adjusted. Then, similar assessment of the performance of bond funds and active configuration funds is made with the same method, to test the robustness of the results of equity funds performance assessment.Followed are the conclusions. First, security selecting ability of domestic open-end funds is brilliant, which creates significant excess returns, and this means these funds beat the market on the whole. Second, good market timing ability of these funds is showed under the unconditional models, which however disappears under the conditional models. Third, conditional models are more suitable for evaluating the performance of open-end funds than unconditional models. Fourth, purchase and redemption service provided for investors by open-end funds has little effect on these funds' performance. Fifth, the 5 public information variables selected have some predictive power on China's stock market and the returns of open-end funds, so they are adapted to be added to conditional models to assess the performance of open-end funds. Among them, the steady state of the risk-free rate of return and year on year growth rate of M1 have stronger predictive power compared to other three variables, and are more suitable to be added to conditional models for open-end funds' performance evaluation.