Exploring the zoo of predictors for mutual fund performance in China

Zhiyong Li and Xiao Rao

Pacific-Basin Finance Journal, 2023, vol. 77, issue C

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.

Keywords: Mutual fund; Return predictability; Investor behavior; Chinese market (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 G2 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x22002256

DOI: 10.1016/j.pacfin.2022.101930

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