Open-end Fund Performance Evaluation

This article review the traditional mutual fund performance evaluation approaches e.g. Jensen's alpha,Fama's three-factor model and Carhart's four-factor model.Through establishing random portfolios,this article examines these models which are based on regression.In current Chinese capital market,the Fama model will recognize inexistent extra return;meanwhile the Carhart model can not recognize relatively high ones.The results show that Jensen's alpha is most suitable to Chinese market.Meanwhile,a new performance evaluation indexθbased on stock holding status is developed and its effectiveness is examined by stochastic simulations.The results show that the new index reflects the funds' true ability more than the traditional indices based on excess returns.Through empirical analysis of practical funds' data from Chinese market,this article find that the funds in China as a whole are managed effectively and their performances are strongly persistent,i.e.effectively managed.Also,the results of new performance evaluation index are somewhat different from the traditional ones,which indicate that the traditional performance evaluation only focus on realized extra returns of funds instead of real management capabilities of funds.The new performance evaluation index starting from the stock holding status can reflect the capabilities of fund managers better and be more suitable to Chinese market.On this basis,this article re-evaluates the consistence of performance of Chinese funds and finds that the consistence of funds performance is higher.Thus this article concludes that the new performance evaluation index based on stock-holding status and interactivity of funds can eliminate the fact of luck and reflect the true capability of fund mangers.