Risk-adjusted performance, selectivity, timing ability and performance persistence of Hong Kong mutual funds

Abstract

This paper examines the performance of thirty Hong Kong mutual funds during the period from August 1995 to July 2005. The issues of risk-adjusted performance, selectivity, timing ability and performance persistence are addressed. We employ the signal-factor model, three-factor models and the measurements of Jensen’s alpha and Treynor ratio to evaluate the weekly returns on the sample funds relative to the performance of the Hong Kong market benchmark. Treynor and Mazuy (1966)’s quadratic model is used for assessing selectivity and timing ability of fund managers. Performance persistence of Hong Kong mutual funds is assessed at successive two-year intervals based on their ranking according to both Jensen measure and Treynor measure. Evidence of underperformance of Hong Kong mutual funds relative to the market is found. No significant selectivity and timing ability are shown in the results of the actively managed mutual funds. Persistence is identified for the performance of both winners and losers in the short run.