The Empirical Study On The Performance Persistence Of Open-end Funds In China

Performance persistence of funds is defined that those which perform well keep their success whereas those which have poor performances keep going worse. That is what we call "the hot hands and the cold hands" .So if investors are able to identify "the hot hands" and buy them, they will get an excess return. Also, if investors are able to identify "the cold hands" and avoid buying them, they will be saved from a bad investment. Using Jensen index as performance index, this paper applies performance separation method and cross-sectional regression method to test the persistence of the performance of China' s open-end funds. The empirical evidences show that the open-end funds do not exhibit strong performance persistence as a whole, especially between the future performance and the short-term basis (say 3 months) or the super-long-term basis (say 18 months). There is weak persistence between mid-long-term basis(say 6 or 12 months) and future mid-short-term basis (say 1-6 months). And there is relatively stronger persistence between mid-term basis(say 6 months) and future mid-short-term basis(say 1-6 months). Meanwhile, the funds exhibit a significant positive performance persistence in the bear market.