{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,9,24]],"date-time":"2026-09-24T09:07:51Z","timestamp":1790240871689,"version":"4.1.0"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":37,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/www.uspto.gov\/ip-policy\/copyright-policy\/copyright-basics"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>We study whether risk-adjusted selection skill survives transaction costs in the Chinese actively managed equity fund market. Our research sample is a daily panel of 1,350 funds from January 2005 to September 2024, aggregated to monthly frequency; the period after the data cutoff (October 2024-November 2025) is reserved as a genuine out-of-sample holdout. Transaction costs are computed with a fee engine parsed fund-by-fund from prospectus schedules. We report the following results. First, the t-statistic of a rolling two-factor alpha predicts performance: pre-transaction-cost returns rise monotonically across quintiles. Second, we document a \"friction trap\"-realized fee drag rises monotonically with rebalancing frequency, robustly in and out of sample. Third, once the same per-fund costs are applied to every portfolio, the selection strategy is statistically comparable to a naive equal-weighted basket of all funds (it trails narrowly both in and out of sample), while both dominate the passive CSI 300 and CSI 500 indices on a risk-adjusted basis. Fourth, in a look-ahead-free cross-section only fund age robustly predicts performance; size, ratings, and ESG do not. A strategy-level panel confirms that high-frequency rebalancing is structurally costlier, though we make no causal claim from the 2017 liquidity reform.<\/jats:p>","DOI":"10.2139\/ssrn.7237459","type":"posted-content","created":{"date-parts":[[2026,8,6]],"date-time":"2026-08-06T13:11:19Z","timestamp":1786021879000},"source":"Crossref","is-referenced-by-count":0,"title":["The Friction Trap: Transaction Costs, Fund Characteristics, and the Limits of Active Selection in the Chinese Mutual Fund Market"],"prefix":"10.2139","author":[{"ORCID":"https:\/\/orcid.org\/0009-0004-8986-9155","authenticated-orcid":true,"given":"Yan","family":"Zhao","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","reference":[{"issue":"1","key":"ref1","doi-asserted-by":"crossref","first-page":"57","DOI":"10.1016\/j.jfineco.2004.06.010","article-title":"Law, finance, and economic growth in China","volume":"77","author":"F Allen","year":"2005","journal-title":"Journal of Financial Economics"},{"issue":"1","key":"ref2","doi-asserted-by":"crossref","first-page":"601","DOI":"10.1111\/jofi.13096","article-title":"Skill, scale, and value creation in the mutual fund industry","volume":"77","author":"L Barras","year":"2022","journal-title":"The Journal of Finance"},{"issue":"6","key":"ref3","doi-asserted-by":"crossref","first-page":"1269","DOI":"10.1086\/424739","article-title":"Mutual fund flows and performance in rational markets","volume":"112","author":"J B Berk","year":"2004","journal-title":"Journal of Political Economy"},{"issue":"1","key":"ref4","doi-asserted-by":"crossref","first-page":"1","DOI":"10.1016\/j.jfineco.2015.05.002","article-title":"Measuring skill in the mutual fund industry","volume":"118","author":"J B Berk","year":"2015","journal-title":"Journal of Financial Economics"},{"issue":"1","key":"ref5","doi-asserted-by":"crossref","first-page":"249","DOI":"10.1162\/003355304772839588","article-title":"How much should we trust differences-in-differences estimates?","volume":"119","author":"M Bertrand","year":"2004","journal-title":"The Quarterly Journal of Economics"},{"issue":"3","key":"ref6","doi-asserted-by":"crossref","first-page":"451","DOI":"10.2307\/2676213","article-title":"Morningstar ratings and mutual fund performance","volume":"35","author":"C R Blake","year":"2000","journal-title":"Journal of Financial and Quantitative Analysis"},{"key":"ref7","first-page":"553","volume":"5","author":"S J Brown","year":"1992","journal-title":"Survivorship bias in performance studies"},{"issue":"6","key":"ref8","doi-asserted-by":"crossref","first-page":"3470","DOI":"10.1287\/mnsc.2023.4857","article-title":"Dynamic market timing in mutual funds","volume":"70","author":"J A Busse","year":"2024","journal-title":"Management Science"},{"issue":"1","key":"ref9","doi-asserted-by":"crossref","first-page":"57","DOI":"10.1111\/j.1540-6261.1997.tb03808.x","article-title":"On persistence in mutual fund performance","volume":"52","author":"M M Carhart","year":"1997","journal-title":"The Journal of Finance"},{"issue":"3","key":"ref10","doi-asserted-by":"crossref","first-page":"679","DOI":"10.1016\/j.jfineco.2020.08.012","article-title":"The real value of China's stock market","volume":"139","author":"J N Carpenter","year":"2021","journal-title":"Journal of Financial Economics"},{"issue":"5","key":"ref11","doi-asserted-by":"crossref","first-page":"1276","DOI":"10.1257\/0002828043052277","article-title":"Does fund size erode mutual fund performance? 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