The Empirical Study On Persistence Of Five-star Funds' Performance

The persistence of fund performance is defined that fund those performance well will keep outstanding in the next period;whereas those have poor performance will keep worse. There are two methods to evaluate the persistence of fund performance, which are called absolute persistence and relative persistence. Absolute persistence of fund performance implies that a fund can surpass or fall behind a certain benchmark yield, it usually be tested by cross-sectional regression model. Relative persistence of fund performance indicate that a fund can beat or lag behind the average return among the sample fund. Which usually be tested by two-way table model. Investors often choose good fund according to the relative persistence but not the absolute persistence. As the excellent early performance, five-star funds became the favored object by investors, their potential investment logic is that fund which have an excellent reward in the past will keep the tendency and give a better yield in the future.This paper uses cross-sectional regression model and two-way table model, chooses 24 five-star funds'month yield from January 2007 to December 2009 as the sample data to study the persistence of fund performance. The conclusion is that comparing to the whole security market, five-star funds have obvious persistence in short term(three months), but there isn't significant persistence in medium term(six months) and long term(twelve months). While comparing to other five-star funds among the sample fund, there is obvious relative persistence of fund performance in short run, medium run and long run.Studying the persistence of five-star funds'performance, there are three implications: First is to test whether five-star funds have hot- hands trend and give some useful advice to investors. Second, the conclusion can give some feedback to fund management company to improve their marketing promotion. Third, an accurate conclusion to five-star funds can intensify the competition among funds and accelerate fund market survival of the fittest.Finally, according to the conclusions and analysis of factors , this paper put forward some views and proposals to regulators, investors and fund companies, and make prospects in the following studies.