Assessing Mutual Fund Performance in China

Journal of Portfolio Management, Vol. 46, 2020, https://jpm.pm-research.com/content/46/5/118

Posted: 10 Mar 2020

See all articles by Bradford Cornell

Bradford Cornell

Anderson Graduate School of Management, UCLA

Jason C. Hsu

Rayliant Global Advisors; Research Affiliates; University of California, Los Angeles - Anderson School of Business

Patrick Christian Kiefer

University of California, Los Angeles (UCLA) - Anderson School of Management

Phillip Wool

Rayliant Global Advisors

Date Written: February 5, 2020

Abstract

Chinese fund manager performance is interesting because in a market dominated by speculative retail trading, we expect professional fund managers to have persistent edge. Using data on the Chinese mutual fund industry, the authors compute a new skill measure to identify exceptional funds with persistent performance. When an equity mutual fund is in the top 1% of their ranking in a particular 6-month period, the probability the fund will be among the top 10% in return in the following period is 22%. By comparison for funds which rank in the top 1% by past 6-month return, the probability of being a top 10% fund in the next 6 months is only modestly better than noise at 12%. The authors also find declining skill and performance persistence at the industry level, likely driven by the exodus of mutual fund managers to hedge funds. They provide evidence that most of the outperforming funds in China deliver excess performance, relative to peers, through market timing. Funds which reliably pick winning stocks often do not evidence performance. This may be related to a mutual fund management culture which emphasizes market timing for managing downside risk over a focus on relative performance.

Keywords: China, Mutual Fund, Performance

JEL Classification: G00, G1, G15

Suggested Citation

Cornell, Bradford and Hsu, Jason C. and Kiefer, Patrick Christian and Wool, Phillip, Assessing Mutual Fund Performance in China (February 5, 2020). Journal of Portfolio Management, Vol. 46, 2020, https://jpm.pm-research.com/content/46/5/118, Available at SSRN: https://ssrn.com/abstract=3540459 or http://dx.doi.org/10.2139/ssrn.3540459

Bradford Cornell

Anderson Graduate School of Management, UCLA ( email )

Pasadena, CA 91125
United States
626 833-9978 (Phone)

Jason C. Hsu (Contact Author)

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
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HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Patrick Christian Kiefer

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Phillip Wool

Rayliant Global Advisors ( email )

Hong Kong

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