Stock Fragility and Corporate Investment Decisions: Evidence from Chinese Mutual Funds

Huan Liao ()
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Huan Liao: Nankai University

A chapter in Proceedings of the 2026 3rd International Conference on Applied Economics, Management Science and Social Development (AEMSS 2026), 2026, pp 560-567 from Springer

Abstract: Abstract This paper studies stock price fragility driven by correlated mutual fund trading and its implications for equity volatility and corporate financial policies in the Chinese A-share market. Building on Greenwood and Thesmar (2011), we show that fragility robustly predicts future return volatility and outperforms conventional ownership measures. Firms exposed to higher fragility hold more cash, consistent with precautionary motives, with stronger effects among non-state-owned enterprises. Exploiting China’s alternating mutual fund disclosure regime, we find that fragility constructed from top-ten holdings exhibits greater economic magnitude and statistical significance than that based on full holdings, highlighting the dominant role of core institutional positions. Overall, stock fragility has material effects on both market risk and firms’ real decisions.

Keywords: Institutional Fragility; Stock Return Volatility; Corporate Financial Policies (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6239-672-2_53

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DOI: 10.2991/978-94-6239-672-2_53

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