Evaluating QDII Mutual Fund Based On Risk Adjusted Return Of Capital

With the development of QDII mutual funds, investors have moreopportunities to invest in foreign markets, but sometimes it is difficult forthem to select suitable products in accordance with their risk preferencewhen they make the investment decisions with little evaluationinformation. As a result, the fund evaluation methods become more andmore important.The main QDII mutual fund performance evaluation methods focuson the rank of funds’ absolute returns now. Also, above methods wouldcalculate the result of risks mainly through Sharpe ratio, Jensen ratio andTreynor ratio, but above three ratios face more and more challenges and itneeds more adjustments to evaluate QDII mutual fund performanceaccurately. The main job of this paper is to do the research of articlesabout fund evaluation, compare them with the evaluation experience fromcurrent QDII mutual funds, and conclude the disadvantage of current QDIImutual fund evaluation methods. At last, the paper suggestsRisk-Adjusted Return of Capital (“RAROC”) in fund evaluation method,which uses estimated VAR in RAROC.There are two improved points when calculate the VAR, first, wechange the distribution of financial products’ returns, which is fromnormal distribution to t-distribution. Second, we use EGARCH Model toestimate the volatility of financial products, not standard deviation like before. As a result, above improvements are proved to be effective innew evaluation method.At last, we evaluate sample QDII mutual funds in the market withabove improved method and compare the results with the rank in currentmethods. The comparison result shows the improved method the paperintroduced could show the relationship between high risk and high returnmore effectively and evaluate QDII mutual funds under each piece of riskmore accurately. Also, the improved method gives us the reference toevaluate other domestic mutual funds in this way.