Do Enhanced Index Funds Truly Have Enhanced Performance? Evidence from the Chinese Market

Yin-Che Weng and Rui Wang

Emerging Markets Finance and Trade, 2017, vol. 53, issue 4, 819-834

Abstract: The index fund market has grown dramatically in China, particularly for active index funds known as enhanced index funds (EIFs). This article is the first to thoroughly exam the performance of EIFs in the Chinese market. Our analysis shows that EIFs in China perform worse than their benchmarks. We note that EIF managers are good market timers when the market does not move significantly. The underperformance of EIFs is primarily attributed to a fund manager’s stock-picking ability; former managing experience is also a factor. Our results suggest that passive index funds are better choices than active funds for fund investments in the Chinese market.

Date: 2017
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DOI: 10.1080/1540496X.2015.1105637

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