Do fund managers in the Chinese mutual fund market deliver positive risk-adjusted returns? Yes, but it is mainly observed for local fund managers

Julius Nickelsen; Olaf Stotz; Julius Nickelsen; Olaf Stotz

doi:10.3934/QFE.2023029

Quantitative Finance and Economics

2023, Volume 7, Issue 4: 595-621. doi: 10.3934/QFE.2023029

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Research article

Do fund managers in the Chinese mutual fund market deliver positive risk-adjusted returns? Yes, but it is mainly observed for local fund managers

Julius Nickelsen ,
Olaf Stotz ^,

Frankfurt School of Finance and Management, Adickesallee 32–34, D-60322 Frankfurt am Main, Germany

Received: 16 June 2023 Revised: 30 October 2023 Accepted: 02 November 2023 Published: 14 November 2023
JEL Codes: G11, G23

A bootstrap and a subsequent injected alpha analysis were conducted on 1,221 Chinese mutual funds that were active at some point between July 2001 and July 2021. The results show that most active managers achieve a positive risk-adjusted return. Additionally, we find that this phenomenon is primarily attributable to local (i.e., Chinese) fund managers. We argue that one explanation for the different levels of risk-adjusted returns observed is the information asymmetry between foreign and local fund managers. Additional results support this view, as fund managers primarily investing in small- to mid-cap and value stocks provide a superior performance, which inherently exhibit greater information asymmetry. The findings are contrary to those from similar studies in developed markets, where only a few active managers demonstrate actual skill in their performance.
- Skill versus Luck,
- active management,
- bootstrap methodology,
- injected alpha,
- Chinese mutual fund market,
- investment styles,
- information asymmetries
Citation: Julius Nickelsen, Olaf Stotz. Do fund managers in the Chinese mutual fund market deliver positive risk-adjusted returns? Yes, but it is mainly observed for local fund managers[J]. Quantitative Finance and Economics, 2023, 7(4): 595-621. doi: 10.3934/QFE.2023029

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Abstract

A bootstrap and a subsequent injected alpha analysis were conducted on 1,221 Chinese mutual funds that were active at some point between July 2001 and July 2021. The results show that most active managers achieve a positive risk-adjusted return. Additionally, we find that this phenomenon is primarily attributable to local (i.e., Chinese) fund managers. We argue that one explanation for the different levels of risk-adjusted returns observed is the information asymmetry between foreign and local fund managers. Additional results support this view, as fund managers primarily investing in small- to mid-cap and value stocks provide a superior performance, which inherently exhibit greater information asymmetry. The findings are contrary to those from similar studies in developed markets, where only a few active managers demonstrate actual skill in their performance.

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