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In search of winning mutual funds in the Chinese stock market

Author

Listed:
  • Dimitrios Koutmos

    (Worcester Polytechnic Institute)

  • Bochen Wu

    (University of Melbourne)

  • Qi Zhang

    (Durham University)

Abstract

This paper provides a methodological approach, based on the false discovery rate (FDR) of Barras et al. (J Finance 65(1):179–216, 2010. https://doi.org/10.1111/j.1540-6261.2009.01527.x), by which investors can successfully select winning mutual funds and fund managers in China. Our approach allows investors to distinguish between skilled and lucky mutual funds and fund managers and, using this information, to calibrate the proportion of their portfolio funds that are invested in the market index versus funds invested in skilled mutual funds. This feature in our approach can accommodate unique risk appetites and diversification requirements. When accounting for actual transaction costs which individual and institutional investors face in China, we show that our FDR approach can yield positive and economically significant risk-adjusted returns across various rebalancing frequencies. Our approach fares well when compared with naive historical return-based approaches for ranking mutual funds.

Suggested Citation

  • Dimitrios Koutmos & Bochen Wu & Qi Zhang, 2020. "In search of winning mutual funds in the Chinese stock market," Review of Quantitative Finance and Accounting, Springer, vol. 54(2), pages 589-616, February.
    • Handle: RePEc:kap:rqfnac:v:54:y:2020:i:2:d:10.1007_s11156-019-00800-z
    DOI: 10.1007/s11156-019-00800-z
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    Cited by:

    1. Li, Xing & Hou, Keqiang, 2023. "Over-weighting risk factor augmented with mutual fund managers' social networks," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    2. Onur Kemal Tosun & Liang Jin & Richard Taffler & Arman Eshraghi, 2022. "Fund manager skill: selling matters more!," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 969-994, October.
    3. Emmanuel Mamatzakis & Bingrun Xu, 2021. "Does ownership structure affect performance? Evidence from Chinese mutual funds," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1399-1435, May.

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    More about this item

    Keywords

    Chinese mutual funds; false discovery rate; Mutual fund performance;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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