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Exploring the zoo of predictors for mutual fund performance in China

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  • Li, Zhiyong
  • Rao, Xiao

Abstract

This study conducts a comprehensive and systematic empirical examination of the variables that can predict the cross-sectional alphas of the mutual funds in the Chinese market. From 47 predictors considered, it is found that about half show significant predictive ability for ex-post fund alphas of one, three, and six months. This finding is based on alpha spreads from quantile sorts or the slopes from cross-sectional regressions. Further, arbitrage activity may impede the predictability. Finally, the predictive characteristics identified in this study have not yet been fully learned by investors, whereas investors make their investment decisions based largely on past one-year returns. This finding implies the presence of capital misallocation in mutual fund investment in the Chinese market. Our results should be highly informative to fund rating agencies and professional fund investors.

Suggested Citation

  • Li, Zhiyong & Rao, Xiao, 2023. "Exploring the zoo of predictors for mutual fund performance in China," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x22002256
    DOI: 10.1016/j.pacfin.2022.101930
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    More about this item

    Keywords

    Mutual fund; Return predictability; Investor behavior; Chinese market;
    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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G2 - Financial Economics - - Financial Institutions and Services

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