An Empirical Study On The Performance Of Stock Funds In China Based On Carhart Four-Factor Model

In recent years, with the continuous growth of China’s total economic output, China’s securities market has achieved remarkable development.As one of the most important institutional investors, the size of the securities investment fund growing gradually, and continue to be recognized by our investors.With investment flexibility, better liquidity and high market transparency, stock funds have won the majority of investors in the competitive securities market, and have grown and become a mainstream variety in securities investment funds. According to statistics, by June2012, China’s securities market has67fund companies; there are a total of1,087open-end funds, of which304are stock funds, and its accounted for28%. The evaluation of the performance of stock funds can give a correct judgment of the fund manager’s ability. Meanwhile, regulatory agencies can also make judgments according to its performance and then work out the right regulatory measure which conducive to the healthy and stable development of the fund industry, and therefore the evaluation has a very important theoretical and practical significance.By adding momentum factor to the three-factor model, Carhart succeeded in developing it into a four-factor model, and solving the problem of the existence of the momentum effect. Four-factor model reflects the securities markets in the role of market risk factors, scale factors, value and momentum factors. Thus it can better explain the sources of fund performance, which can also provide a new approach to evaluate stock fund performance. Based on the empirical research method, we select56stock funds established before June30,2006as the study object to assess the investment performance of the stock funds from both macro and micro perspective. Meantime, we also examine whether this model is applicable. Based on this model’s attribute of identifying the fund performance’s, we will also have a brief analysis of stock fund’s investment style. We have different selection standards with other researchers, the time intervals of the momentum effect is six months.Through the empirical analysis of the investment performance of stock funds, But we also found that the four-factor model can better fit the data of stock funds in China, whether as a whole or individual.The model can also reasonably and effectively explain the source of the investment performance of the fund and its investment style which is highly consistent with the results of Morning Star and Galaxy Securities ratings. Hence, this model can be seen is applicable and reliable in China’s stock market.Comparing to the single-factor model and the three-factor model, the analysis of the sources of performance has been further extended. However, there are still some limitations, for example, the factors is certainly more than four, and we fail to examine the persistence performance of stock funds and its risk characteristics. So it is necessary to further improve performance evaluation methods of the stock funds, so as to gradually enrich the fund performance evaluation system in China.