An Empirical Research In The Performance Evaluation Of Mutual Funds In China

The measurement of investment performance has always been the main concerned issue for managers and investors. In general, Sharpe ratio is the best method to evaluate the mutual fund of China, but it has some limitations. First, the Sharpe ratio suffers from a methodological problem: Because of the presence of random denominator in its definition and the difficulty in determining the sample size needed to achieve asymptotic normality, the Sharpe measure does not easily allow for evaluation of its own sampling distribution. As a result, assembling any notion of the estimation risk in the Sharpe index point estimate has been difficult. But the evaluation of estimation risk is important, that is because the estimation of Sharpe ratio is bias. To solve the problem, Vinod (1999) proposed the "Double Sharpe ratio", which takes into account estimation risk. Besides, Sharpe ratio is bases on CAPM, Which exists a lot of disputation. At the same time, Sharpe Ratio uses the standard deviation for the risk evaluations. The standard deviation only measures the floating risks, but not the declining risk. To solve the two problems, some scholars proposed VaR-Sharpe ratio, which used VaR to evaluate portfolio risk. But VaR-Sharpe also has the methodological problem, which exits in the Sharpe ratio. This paper studies the properties of VaR-Sharpe ratio and then uses the bootstrap methodology to suggest a new "double" VaR-Sharpe ratio which incorporates estimation risk. The methodology is illustrated with the 17 oldest mutual funds. As a result, the ranking of mutual funds by the VaR-Sharpe and Double VaR-Sharpe ratios can be quite different to individual fund though they are similar on the whole. So, double VaR-Sharpe ratio could play an important role in the performance evaluation of mutual funds.