Empirical Study on the Performance of Hedge Funds in China

Abstract: China is one of the most popular emerging markets, and the fund management industry has experienced rapid growth during the past decade, especially private funds. Although the regulatory regimes were underdeveloped at first, the government realized that it was important to improve the related regulation to address this problem. On June 1, 2013, the Chinese new fund law was formally implemented, and hedge funds obtained clearly legal status for the first time, which started the rapid development of the hedge fund industry. This paper investigates the performance of hedge funds in China, which was issued after the new fund law, in China. The sample is 54 picked hedge funds over the period 2014-2020. The performance is evaluated through three models: Fama-French's three-factor model, Carhart's four-factor model, and a modified eight-factor model. According to the regression results, these three models do better than models in my previous research (CAPM, Henriksson-Merton model, and Treynor-Mazuy model). Then, we conduct the contingency table and the recursive portfolio approach based on three models to investigate the performance persistence of hedge funds in China. According to the results of the contingency table, all models show that our sample shows one-year persistence between 2016 and 2019, including past winners and losers. However, through the recursive portfolio approach, there is no enough evidence found. Then I compare the results of this paper with the results of the Bocconi paper and summarize the whole conclusions of my study on the performance of hedge funds in China.