Study Of The Relationship Between Open-ended Equity Fund Performance And Fund Recessive Behavior

Based on the empirical study on 118 actively-managed (non-index) domestic open-end equity funds, we find that, aggregately, the unobserved actions of these funds are not significant, that is, the return and cost of unobserved actions just offset each other. We use the indicator return gap to measure the unobserved actions of fund managers and conclude that the performance of unobserved actions of funds persist both in short-term and mid-to long-term. High return gap comes after high return gap; vice visa. Return gap has predictive power to fund performance, investing in funds that demonstrate good historical unobserved actions will bring high absolute return. The back testing filtration methods can improve the effectiveness of the fund selection strategy.Based on the risk-adjusted Jensen model, it seems that the performance difference is mainly generated by Beta, not Alpha. Treynor ratio also shows that our strategy is not effective. But Sharpe ratio supports our strategy. We also find that our selection strategy is more effective than the traditional momentum strategy.This paper is the first one that focuses on the unobserved actions of open-end funds in China. Besides, using holding portfolio returns for fund performance analysis is also innovative; few research has been done in this area in China.