Investment Style of China's Fund and Its Influence on Fund Performance

The investment style is a hot topic of fund analysis nowadays. Applying the return based style analysis (RBSA, introduced by Sharpe in 1988, 1992), this paper presents an empirical analysis of China's fund style analysis and corresponding performance evaluation. Compared with previous studies which were single performance analysis or single style analysis in China, there are some new explorations in the paper. We use a new model to combine the two fields. The other new development is that we construct a useful hypothesis test method in the study, which makes a scientific criterion to evaluate the results of fund style analysis. From the study of 51 close-end funds operating in the time period from January, 2000 to December, 2003, we found that fund performances showed a parentally regulative pattern when the investment style effects were taken into account. The difference of funds performance results from the differences of the fund investment style. Better performanced funds adopted positive investment policies; while worse performanced funds employed more balanced passive investment policies. The asset allocation or the fund style accounts for 83.9% and 82.8% of funds performance in the bull market and the bear market respectively. Fund styles changed much from the bull market to the bear market. In the bull market, investment styles of mutual funds were growth type investing in large-cap and growth stocks, while in the bear market, investment styles were more balanced primarily investing the bond or cash assets