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 47 pre-dictors 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 predict-ability. Finally, the predictive characteristics identified in this study have not yet been fully learned by investors, whereas investors make their investment decisions based largely on past one-year returns. This finding implies the presence of capital misallocation in mutual fund in-vestment in the Chinese market. Our results should be highly informative to fund rating agencies and professional fund investors.