A Quantitative Research On Mutual Funds’investment Ability Andasset Allocation Based On PCM

Value-based management is the focus of attention problems in business management.Thanks to10years rapid development, the mutual funds have been the major participants ofour capital market, and the main way of residents’ household wealth allocation in China.Traditional researches on the mutual funds always just emphasize on their improving thegovernance of listed companies and stabilizing the capital market as institutional investors.However, the mutual funds are also major indirect means of asset allocation, and theiressential core of investment ability should be paid more attention too.Studies have shown that the mutual funds whose investment strategies are based onmarket timing can not create value or enhance ability. For example, the performance of theglobal hedge funds have been proved far worse than almost every major stock index and bondindex in the past four years. The development of domestic mutual funds was equally worrying.Statistics show that the deficit of fund industry in2008reached as high as1.5trillion Yuan,which means that the accumulation of hard work in past several years lost instantly, so did theindustry. Because of this, the fund investors’ confidence has been shaken gradually. Since thebeginning of2008, when the market shifted to a bear one, mutual stock funds’ shareredemption was always greater than the share purchase in almost every season, and thedevelopment of the whole industry shown extremely fatigued and weak. Since theirdevelopment has not meet investors’ expectation, how to identify and evaluate theirinvestment ability accurately and reasonably, and provide some effective measures, has beenthe common concern and focus among the fund shareholders, the fund managementcompanies and the regulatory agencies.Base on some very previous studies, the conceptual framework and research logic ofinvestment ability is first constructed in this study. The difference in the concept connotationand extension between investment ability and performance is strictly distinguished too. Then,the Portfolio Change Measure, as a non-parametric evaluation method, is introduced to applyto77selected stock funds for the first time. The empirical results reveal that the investmentability of the mutual funds in China is not significant overall. This may be the major reasonthat obstructs the industry development. Finally, under the framework of asset allocationanalysis, some strategies, which are developed from three aspects among the stock, industryand dynamic allocation, are provided tentatively enhanced the investment ability. Accordingto further quantitative analysis and empirical test, those strategies have been proved effective and robust.The results of this study are based on the reality of inefficient market. Using variousresearch methods, theoretical interpretations and financial data of large samples and longcycle, some conclusions are drawn and consistent with expectation. The innovation of thispaper is mainly reflected in two points. Firstly, this study breaks the traditional routine thatfocusing on performance but despising ability, reveals the relationship between the mutualfund investment ability and the industry development deeply. The related results are not onlyuseful addition to positive asset management theory but also beneficial attempt to completethe classical investment theory. Secondly, the PCM method, which is fully developed on thebasis of the portfolio information, was introduced. Compared with existing performanceevaluation methods, the PCM can avoid the problems of benchmark choice and survivorshipbias.This study also seeks to provide available realistic guidelines for the mutual fundmanagers’ investing practice, necessary selection foundations for the residents’ householdwealth allocation, and decision basis for regulatory agencies’policies making.