An evaluation of Chinese securities investment fund performance

Gao, Jun; O’Sullivan, Niall; Sherman, Meadhbh

doi:10.1016/j.qref.2019.08.007

Cited by 9 publications

(11 citation statements)

References 19 publications

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“…The alpha estimates the excess return of the funds over and above a benchmark. As noted by Gao et al ( 2020 ) and Lemeshko and Rejnuš ( 2015 ), it is an important measure to evaluate equity funds. The (Carhart 1997 ) four factor-based Jensen’s alpha (α) is estimated as follows.…”

Section: Empirical Strategymentioning

confidence: 99%

“…Given that no prior study has linked HCE with mutual funds' performance, we identify this as a valid research gap. Therefore, we extend the context of mutual funds performance beyond the skill vs. luck context of Fama and French ( 2010 ), Berk and van Binsbergen ( 2015 ), Cai et al ( 2018 ), and Gao et al ( 2020 ) to evaluate the impact of HCE on mutual funds. Specifically, we hypothesize that funds with higher human capital efficiency should outperform their counterparts with lower human capital efficiency and vice versa.…”

Section: Introductionmentioning

confidence: 99%

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Human capital efficiency, performance, market, and volatility timing of asian equity funds during COVID-19 outbreak

et al. 2021

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Despite its relevance for financial services, the impact of human capital efficiency on mutual fund performance has remained unexplored. In this paper, we attempt to explore this gap in the context of the outbreak of COVID-19 that provides us a unique opportunity to assess human capital's importance during economic pressures. We employ data on 2044 equity funds across sixteen COVID-19 affected Asian countries to analyze the performance, market, and volatility timing after sorting these funds as per their human capital efficiency. Our results show that funds with better human capital efficiency outperform their counterparts that rank lower on human capital efficiency. The outperformance as measured by adjusted Sharpe and Sortino’s ratios, Jensen’s alpha, stochastic dominance, market, and volatility timing remained consistent for the pre-COVID period as well as through the outbreak during which the impact of human capital efficiency became even more significant. These findings have important strategic implications for mutual funds.

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Section: Empirical Strategymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Human capital efficiency, performance, market, and volatility timing of asian equity funds during COVID-19 outbreak

et al. 2021

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“…Findings based on these performance models suggest little or no significant abnormal return on average (Zhou and Shi, 2004;Xiao and Yang, 2005;Luo, 2011;Gao et al, 2020). The preponderance of evidence from developed mutual fund industries, such as the USA and the UK also fail to find robust evidence of positive abnormal performance -Carhart (1997), Christopherson et al (1998), Hendricks et al (1993), Blake and Timmermann (1998), Quigley and Sinquefield (2000), Fletcher and Forbes (2002) and Cuthbertson et al (2008).…”

Section: Introductionmentioning

confidence: 99%

“…As an emerging market, the Chinese fund industry is not as well-explored as the USA and the UK. Previous studies on Chinese securities investment fund performance indicate no significant positive abnormal return on averagealthough a small number of funds do produce stock selection ability (Zhou and Shi, 2004;Xiao and Yang, 2005;Zhao and Wang, 2007;Luo, 2011;Gao et al, 2020). However, past papers are principally based on parametric tests, and hence, may lead to difficulties around normality and skill versus luck as discussed above.…”

Section: Introductionmentioning

confidence: 99%

“…Their findings, however, are based on conventional statistical measures only, and hence, do not incorporate non-normality in the idiosyncratic risk of fund returns to distinguish skill from luck in fund performance. In addition, the Gao et al (2020) paper does not take the profitability and investment risk factors in Fama and French (2015) into consideration.…”

Section: Introductionmentioning

confidence: 99%

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Chinese securities investment funds: the role of luck in performance

Gao

O’Sullivan

Sherman

2021

RAF

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Purpose The Chinese fund market has witnessed significant developments in recent years. However, although there has been a range of studies assessing fund performance in developed industries, the rapidly developing fund industry in China has received very little attention. This study aims to examine the performance of open-end securities investment funds investing in Chinese domestic equity during the period May 2003 to September 2020. Specifically, applying a non-parametric bootstrap methodology from the literature on fund performance, the authors investigate the role of skill versus luck in this rapidly evolving investment funds industry. Design/methodology/approach This study evaluates the performance of Chinese equity securities investment funds from 2003–2020 using a bootstrap methodology to distinguish skill from luck in performance. The authors consider unconditional and conditional performance models. Findings The bootstrap methodology incorporates non-normality in the idiosyncratic risk of fund returns, which is a major drawback in “conventional” performance statistics. The evidence does not support the existence of “genuine” skilled fund managers. In addition, it indicates that poor performance is mainly attributable to bad stock picking skills. Practical implications The authors find that the top-ranked funds with positive abnormal performance are attributed to “good luck” not “good skill” while the negative abnormal performance of bottom funds is mainly due to “bad skill.” Therefore, sensible advice for most Chinese equity investors would be against trying to “pick winners funds” among Chinese securities investment funds but it would be recommended to avoid holding “losers.” At the present time, investors should consider other types of funds, such as index/tracker funds with lower transactions. In addition, less risk-averse investors may consider Chinese hedge funds [Zhao (2012)] or exchange-traded fund [Han (2012)]. Originality/value The paper makes several contributions to the literature. First, the authors examine a wide range (over 50) of risk-adjusted performance models, which account for both unconditional and conditional risk factors. The authors also control for the profitability and investment risks in Fama and French (2015). Second, the authors select the “best-fit” model across all risk-adjusted models examined and a single “best-fit” model from each of the three classes. Therefore, the bootstrap analysis, which is mainly based on the selected best-fit models, is more precise and robust. Third, the authors reduce the possibility that findings may be sample-period specific or may be a survivor (upward) biased. Fourth, the authors consider further analysis based on sub-periods and compare fund performance in different market conditions to provide more implications to investors and practitioners. Fifth, the authors carry out extensive robustness checks and show that the findings are robust in relation to different minimum fund histories and serial correlation and heteroscedasticity adjustments. Sixth, the authors use higher frequency weekly data to improve statistical estimation.

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Performance

Galloppo

2021

Asset Allocation Strategies for Mutual Funds

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An evaluation of Chinese securities investment fund performance

Cited by 9 publications

References 19 publications

Human capital efficiency, performance, market, and volatility timing of asian equity funds during COVID-19 outbreak

Human capital efficiency, performance, market, and volatility timing of asian equity funds during COVID-19 outbreak

Chinese securities investment funds: the role of luck in performance

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