An Study On Open-ended Equity Fund Performance Persistence

Since the September2001issue the first fund, the open-ended fund in China has only10years history. Since its birth, the open-ended fund gradually become the investors’ favor because of good liquidity, transparency, incentive.With the expansion of the Fund, this field attracts not only investors’enthusiasm, also the attention of scholars. In the emerging security market, the performance of the Fund could outperform the market or not, this issue becomes the focus.Along with the development, securities investment Funds play an important role in the security market increasingly. Domestic scholars have made some empirical research about the performance of Fund based on the foreign experience. However, these traditional fund performance evaluation indicators use total risk or systematic risk to revise the income of the Fund, fund managers’ ability of scatter non-systematic risk can’t be investigated. Information Ratio as a modified Treynor index use the non-systematic to amend the income of the Fund, in order to examine the ability of fund managers actively manage. However, due to the short sell deficiency, China’s securities market can’t hedge the systematic risk, information ratio is not applicable in our country. Given this situation, selecting an appropriate indicator in the study of fund performance is particularly critical.On basis of the foreign advanced experience, this article attempts to look for a suitable performance evaluation indicator for open-end Funds, analyzing the stability of the indicator, discussing the open-ended equity Funds’performance persistence with the aid of the indicator. This paper improves the information ratio IR and M2measure, got four indicators to evaluate the performance in terms of non-systemic risk, systemic risk, and the average excess return respectively. And with three models, this paper tries to investigate the stability of the four indicators in face of different model, in order to get a stable indicator to do performance persistence research. This article will select2005-2010as the sample time, using the Kendall coefficient of concordance as tool to explore the performance persistence of41open-end equity fund at multiple time periods.There are five parts in this article. The first part looks back the history of development of fund and analyze the current situation of China’s fund industry. And this part states the tools and methods which this article will use, the purpose of the research and its significance are also mentioned in this part. The second part tells us the research achievements of domestic and foreign scholars in this field in detail, including CAPM model, APT model, Fama-French three factor model and Carhart four factors model. Owing to the short time of the development of China’s fund, we have a late start to the fund performance persistence, and our domestic scholars have different opinions on it. The third part will improve information index and M2indicator, stating the methods and tools with detail. And this part also describes the selection of sample period and sample fund. The fourth part will make empirical research combined with the specific situation of China. For the analysis of short-term and long-term persistence, this part uses weekly data of6years to examining the persistence in6months,12months and24months. Meanwhile, this article also explores the performance persistence in bull or bear market. The fifth part mainly presents the paper conclusion, making course analysis and offering some recommendations. The inadequacies of the paper are also be pointed out in the last part.Compared with foreign funds most unable to obtain excess returns, the performance of China’s securities investment funds are generally better than the market benchmark portfolio. This situation reflects the investment fund has the capacity of expert financial management, investment funds in China basically beat the overall market, but at the same time, in a sense, also shows that China’s capital market is far from perfect, Chinese stock market is not yet an effective market. Through the empirical research on the stability of the indicators, this article found that compared to other indicators has a higher correlation between the model and its stability is relatively better.China’s securities investment fund performance is generally better than the market benchmark portfolio performance, open-end fund performance persistence is not so optimistic. This article examines our stock open-end fund performance persistence in a6month period,12month period and24months, ranking period and holding period take the same time span. The empirical results show that open-end equity fund don’t exist short term or long-term performance persistence in whole or part period.The innovation of this paper is mainly reflected in the following areas. First, we improve IR and M2indicators, getting four risk-adjusted indicators which use systematic risk and non-systematic risk to revise the income of the Fund, and with three models to detect the stability of the indicators. Second, different from the scholars who research the performance persistence on two time periods, this paper use the Kendall coefficient of concordance to examine persistence on multiple time periods. Third, according the stock market condition, we divide the sample period into two intervals, bull market and bear market, and make performance persistence studies in these two periods respectively.The article has the following two inadequacies. One hand, this article only selected equity funds, not other types, such as bond funds, so the conclusion does not apply to the performance analysis of other type. On the other hand, due to the stock market condition in the sample period presents an obvious inverted V-shaped, this paper do not study the persistence of fund performance in the adjustment period. Overcoming the shortcomings of this paper is also the direction of future efforts.