Performance Evaluation of Chinese Actively Managed Stock Mutual Funds

Abstract

The aggregate portfolio of Chinese actively managed stock mutual funds exhibits a large and significantly positive alpha. Results from bootstrap simulations indicate that most Chinese active stock mutual fund managers have skill. A substantial amount of their outperformance can be attributed to the fund managers’ stock picking abilities. Using a Chinese insider trading dataset, I show that the large shareholding companies (including stock mutual funds) possess information that generates significant abnormal returns. Furthermore, I find evidence that stock fund managers trade in accordance with insiders. Finally, I find Chinese institutional investors outperform the market. As institutional ownership of the stock market grows, performance erodes among stock mutual funds.

Keywords: Chinese stock mutual funds, performance evaluation, insider trading, institutional investors, market efficiency, performance erosion

JEL Classification: A13, G00, G11, G12, G14, G15, G20