Finance Anomalies And Fund Performance

Style investing is a common investment strategy used in fund industry, which accounts for the differences in funds performance. Mutual funds use a style's classification scheme that draws on academic research on the behavior of stock returns. Specifically, the style categories are based on two dimensions: market capitalization and value-growth orientation. Size and book-to-market variations help account for differences in fund performance.This paper establishes the logic relation between the finance anomalies and fund performance. First, we propose investment style analysis method based on finance anomalies theory to analyze persistence in fund performance in the framework of the above analysis method. Second, we make a brief review on recent development of China's fund industry development and divide the development period into three stages for further research. Then, we focus on the fund performance's periodical characteristics. Third, we introduce risk spillover concepts into the fund performance analysis to find the correlation in the styles which helps explain the style shifts and the effect of external innovative.Fama and French's three-factor model do a good job in the time series regression work using all the listed stocks(exclude ST,PT categories) in China's A share market and open-end fund returns data. Originally, we construct risk spillover variables to test our assumption and get sound results.The empirical result contains three main conclusions. (1)Size,boot-to-market do a good job in explaining open-end fund returns. Taking style investment strategy can't gain abnormal returns and maintain fund performance's persistence. (2) Fund's performance show strong short-term return cycle characteristics and Funds' Managers don't show obvious ability of obtaining abnormal return. In short-term, style shifts happens and market trend mainly affects funds' performance. (3) Risk spillover effect appears in different funds' performance which explains style cluster phenomenon and differences in fund returns.According to the analysis of empirical results, this paper puts forward the suggestions about enriching investment products, enhancing investor's education, building up reliable fund ratings system and enlarges asset management scope.