Decomposition Of Fund Performance Based On Investment Style

Fund has become an important institution investor. It relies on its peculiar advantages, such as professional management, collection of investment and diversification of risk to attract many individual investors. Also, fund can affect the whole security market with large capital. Based on previous researches, three main opinions are displayed as follows: Some people think that active fund can beat the market, and the outperformance is derived from luck; Other people suggests that active fund outperforms the market due to security selection ability; the rest of them think that active fund can not beat the market. In the previous literature, few research about decomposition of fund performance is based on fund investment style. But this paper divides fund performance into two aspects. One is security selection ability and the other is luck. What’s more, it is mainly about the decomposition of fund performance in the perspective of investment style. We hopes that this paper can explain the resource of the fund performance.This paper analyzes the performance of whole fund industry using data from iFin D database and Wind database, and finds that fund in China can not only beat its own benchmark market but also beat the whole market in general. Then,Bootstrap simulation which is based on the four factors model has been used to analyze decomposition of performance of the whole industry and fund in different investment style. Bootstrap simulation can get many bootstrap samples by sampling with replacement to solve the problem of Small Sample Size and make sample more random. It uses the residual series as the distribution of luck. Taking the high R-Squared and significance of momentum factor into consideration, Carhart four factor model is used as the primary model of bootstrap simulation.We find that at least 5% of active fund in China can get better performance due to security selection ability, and some fund underperforms the market for bad security selection ability. Also we find that there are different levels of skill to be found across the main style groups within China fund industry. Large-cap fund, and growth fund are superior to middle-cap fund and value, blend fund especially.Finally, another different method was used to classify investment style and to get the new data. Then we use the same model to test the new data and eventually get similar results. In one word, we find that at least 5% fund in China possesses security selection ability, and most of them are large-cap fund and growth fund.