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A new measure of fund window dressing and its application to Chinese mutual fund market

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  • Yu, Xiaojian
  • Liu, Jianlin
  • Lien, Donald

Abstract

In this paper, we propose a new window dressing index, Simulation Return Rank Gap, and show it improves over the two popular fund window dressing indexes, Backward Holding Return Gap and Rank Gap. First, we conduct a simulation analysis to confirm the dominance of the new index. Next, we use the Chinese market data to compare the three indexes empirically. We find all three indexes confirm the existence of window dressing in the Chinese fund market. The new index maintains a high consistency ratio and a large Spearman correlation coefficient with other indexes. It also has a smaller probability of misidentifying the window dressing funds. The results support the new index as a superior alternative to the current method.

Suggested Citation

  • Yu, Xiaojian & Liu, Jianlin & Lien, Donald, 2023. "A new measure of fund window dressing and its application to Chinese mutual fund market," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 63-72.
    • Handle: RePEc:eee:quaeco:v:89:y:2023:i:c:p:63-72
    DOI: 10.1016/j.qref.2023.03.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Fund window dressing index; Backward Holding Return Gap; Rank Gap; China;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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