In search of winning mutual funds in the Chinese stock market

Dimitrios Koutmos (), Bochen Wu () and Qi Zhang ()
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Dimitrios Koutmos: Worcester Polytechnic Institute
Bochen Wu: University of Melbourne
Qi Zhang: Durham University

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 2, No 7, 589-616

Abstract: 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.

Keywords: Chinese mutual funds; false discovery rate; Mutual fund performance (search for similar items in EconPapers)
JEL-codes: C14 C15 G11 G23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-019-00800-z

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