In Search of Winning Mutual Funds in the Chinese Stock Market

Koutmos, D; Wu, B; Zhang, Q

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.

Citation

Koutmos, D., Wu, B., & Zhang, Q. (2020). In Search of Winning Mutual Funds in the Chinese Stock Market. Review of Quantitative Finance and Accounting, 54(2), 589-616. https://doi.org/10.1007/s11156-019-00800-z

• Journal Article Type: Article
• Acceptance Date: Feb 25, 2019
• Online Publication Date: Mar 5, 2019
• Publication Date: Feb 28, 2020
• Deposit Date: Mar 19, 2019
• Publicly Available Date: Mar 5, 2021
• Journal: Review of Quantitative Finance and Accounting
• Print ISSN: 0924-865X
• Electronic ISSN: 1573-7179
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 54
• Issue: 2
• Pages: 589-616
• DOI: https://doi.org/10.1007/s11156-019-00800-z
• Public URL: https://durham-repository.worktribe.com/output/1335195