An Empirical Study Of Abnormal Return Of Chinese Mutual Fund:Correcting Market Benchmarks And Panel Data Model

Since 2001, China has its own first open-end fund, Chinese fund industry has rapid development. How do investors choose to obtain excess returns in many funds, are these excess returns from luck or fund managers’skills, etc., remain our relentless pursuit of the issue.In this paper, we will study two issues, using three performance evaluation method to explore the existence of excess returns:Jensen Alpha equation, Fama-French Three-factor Model and the Sharpe Ratio. The primary problem encountered in the research process is to choose the benchmark for the market. This article uses two methods to correct the market benchmarks. The first method is to put all the funds, according to their market benchmarks. We put all the benchmarks into nine groups. Each group has different market benchmark yield. Compared with the simple selection of a market benchmark yield, the regression results will be better. The second method is to use each fund benchmark defined by their fund management company.Another problem encountered in the course of the study is to use the time series model or panel model. Finally, we chose to use the panel model to study excess return funds. This is because the data in this paper, including the 6.5-year performance of 107 funds, that need to be analyzed from both the horizontal and the vertical point of view. Thus, we will use panel technology. Compared with time series model, panel data model is opt for security funds. More specifically, the panel method has the following advantages:First, he dummy variables can exist in this kind of model to control the individual effect. Second, the panel model can increase the degree of freedom of data and can reduce the negative impact of collinearity. Third, it can improve the validity of estimation result by combining different cross-section data at different times. Therefore, the panel data model is more suitable for only just over a hundred of Chinese equity funds.This article can be broadly divided into the following five sections:The first chapter is a preface. It talks about the origins of securities investment funds firstly. Then, this chapter introduces the development of the foreign fund industry and the Chinese fund industry and classifies open-end funds, which is the studying object of this paper. Meanwhile, it refers to the four innovative of this paper and two shortcomings.From three aspects, the second chapter reviews lots of research literature:firstly, domestic and foreign scholars discuss the existence and reason of the fund excess returns; in the second aspect, the scholars study different evaluation criteria of securities investment, including Sharpe Ratio, Jensen’s Alpha, Fama-French three-factor model; in the third aspect of the literature, it is about the skill or luck of domestic and foreign fund managers.The third chapter introduces the main methods to evaluate the fund’s excess return, from basic evaluation methods-Jensen’s alpha and the Sharpe ratio, the Fama-French three-factor model, we use these common evaluation methods fund. After the market benchmark treatment, the empirical results of Jensen’s alpha equation, Fama-French three-factor model found:There is no excess returns. However, the empirical results of Sharpe ratio exists excess returns. Finally, the panel model conducted an empirical regression model.The fourth chapter considers the relationship between excess returns and the ability or luck of fund manager, and clarifies the basic idea Bootstrap, classification and specific steps of Bootstrap. It applies the estimated value of 107 fund performance obtained before and has been carried out further. The results illustrate that few fund managers have outstanding management ability and the overperformance of Chinese equity fund comes from luck.The fifth chapter summarizes the results of this study and difference with previous literature. The article analyzes the inadequacies of data selected, while forecasts the development of the situation in the coming period. It states two aspects-the fund performance evaluation and management capabilities of fund managers to combine with the situation and problems of Chinese fund industry and put forward my own proposals.