Stochastic Dominance Analysis Of Fund Performance

With booming development of stock markets in recent years, more and more kinds of securities products appeared, Chinese investment funds have experienced rapid development. There is dramatic increase in the number of funds. Since the advent of open-end funds and the introduction of the policy, Chinese Funds go on a standardized way. Funds performance evaluation become a focus.In this paper, we us stochastic dominance method to provide partial ordering of funds. This is the initial screening of investments, which is a reference for individual investor choosing the optimum investment and reducing the work of investors.Firstly, this paper reviews and summarized home and abroad theories and methods on the fund performance evaluation. Then, among these methods, we choose a new approach: stochastic dominance approach, which needs less assumption of return, and no uncertain model parameters. The applicability is strong. In recent years, more and more scholars use this method to evaluate performance of stocks, funds and other securities. Then, we select 13 open-end and 15 closed-end funds in China which set up before 2003 with empirical method. The data is weekly return from October,2006 to September,2008, which including two sub-periods: October,2006 to September,2007 and October,2007 to September,2008. During the two sub-periods Chinese stock market has experienced big ups and downs. We evaluate open-end funs and closed-end funds throughout the time period and two sub-periods.The empirical research shows that no significant performance difference of open-end and closed-end funds respectively in a bull market, but in a bear market the fund performance differences are significant. After compound evaluation of open-end and closed-end funds, we find that in a bear market, three open-end funds dominated all other funds, which have a certain reference value for investors.Finally, because of less data, and some other reasons the results are not very good. Hope that with the development of funds and market standardization, we can have better results in future.