Exploring the zoo of predictors for mutual fund performance in China

This study conducts a comprehensive and systematic empirical examination of the variables that can predict the cross-sectional alphas of the mutual funds in the Chinese market. From 36 predictors considered, it is found that about half show significant predictive ability for ex-post fund alphas of one, three, and six months. This finding is based on alpha spreads from quantile sorts or the slopes from cross-sectional regressions. Further, arbitrage activity may impede the predictability. Finally, neither institutional nor individual fund investors are aware of the usefulness of these predictors, whereas individual investors make their investment decisions based largely on past one-year returns. This finding implies the presence of capital misallocation in mutual fund investment in the Chinese market. Our results should be highly informative to those concerned with mutual fund ratings, as well as to professional fund investors such as fund of funds and fund advisors