The Empirical Study On The Performance Evaluation Of Chinese Open-ended Funds Based On Extreme Value Theory

With the rapid development of open-ended funds, the performance evaluation of funds is becoming more and more important. Reasonable and precise evaluation indicators of funds performance are not only the reference for investors making investment decisions, but also an effective external incentive for fund companies to improve their investment performance. But the existing evaluation indicators of funds performance in China are relatively backward, especially in the measurement of returns and risks of funds, which could easily lead to evaluation fallacy. The development of Extreme Value Theory (EVT) and its application to the financial risk management field in1990s provide a new approach of solving the problem. This paper is dedicated to applying the methods of EVT to the measurement of funds’ returns and risks, on the basis of which this paper then builds new risk-adjusted return indicators to evaluate the performance of open-ended funds.Firstly, this paper reviews foreign and domestic research achievements about performance evaluation of mutual funds, and elaborates the significance of applying EVT to the performance evaluation of funds. Then, this paper theoretically studies the methods of constructing evaluation indicators based on EVT and RAROC model. According to the theoretically studies, this paper conducts empirical analysis of the performance of17sample funds using the indicators estimated by GPD model, and compares the evaluation results of the new indicators with those of the classical ones. The empirical results show that:the GPD model can better fit the tail distribution of the yields of funds. And the maximum possible yield (Rmax) and the maximum risk (VaR) estimated by this model can accurately reflect the potential ability of funds in obtaining returns and controlling risks. And the two risk adjusted performance indicators RAROC1and RAROC2based on Rmax and VaR can reflect some features of funds’ performances which are covered under traditional indicators. They can be used in combination with traditional ones in practice.