China's Securities Investment Fund Performance Persistence

With the continued burgeoning size of both open and closed-endsecurity funds,with tremendous emphasis palced upon total return over ashort-term time horizon,this study will examine performancepersistency.A key component tracked by firms and individuals analyzingmutual funds is past performance. Capon,Fitzsimons,andPrince(1996)state,"most open-end mutual fund investors arena?ve,having little knowledge of the investment strategies or financialdetail of their investments"(Capon 1996).As such,it is widelydocumented that many investors rely upon past performance,possiblyeven over a very short and recent time-horizon,to base decisions as towhich portfolios are to receive investment dollars. Performance persisitency can be set in two generalclassifications.One is absolute persistency,which compares a fund'sperformance to a market index's performance. In this regard,the raw orrisk adjusted return is regressed against a market proxy representing thatclassification of investments. The second general classification of performance persistency isrelative performance against funds of similar assetclassification.Predictability from one period to the next is used todetermine persistency.As with Carhart(1997)and other researchers whoexplore relative performance,a data set is divided into a base and aprediction period of egual lengths. Alphas,abnormal rates of return onsecurity in excess of what would be predicted by an equilibrium modellike the Capital Asset Pricing Model or Arbitrage Pricing Theory,areestimated for each fund in the sample and the funds divided into winnersand losers. Winning This Study will add to the litrature by examining both relative andabsolute performance persistency, and extend the research in this fieldby comparing the results for open and closed-end funds to see if theunique characteristics of closed-end funds for better consistency ofperformance. This paper emprically analyzes the performance persisitence ofChinese security funds based on the cross-sectional regressionmethod.The results show that performance persisitence doesn't exsit inChinese new funds' return during dull market ,but the return reversalreally exists during the whole sample period.So the risk managementability of the winner funds during bull market is poorer than the formerloser.