The investment behavior of China-connected mutual funds in the pandemic: Information advantage through operational link

Lai T. Hoang, Kian Tan and Joey W. Yang

International Review of Financial Analysis, 2024, vol. 95, issue PA

Abstract: Focusing on the origination of the COVID-19 outbreak in China, we examine the risk-taking behavior and performance of U.S. equity mutual funds indirectly exposed to China by holding U.S. firms with operational links to the country. We find that China-connected funds are associated with lower risk and higher abnormal returns at the outbreak of the pandemic. The information advantage underlying the outperformance of these funds is reflected in their trades being mimicked by that of other funds, and in the superior timing and stock picking ability of managers. These funds also maintain higher stock liquidity positions and better portfolio diversification during the pandemic. We further identify that fund managers' ethnic origin is the underlying channel for the outperformance of China-connected funds. Our results are robust across a wide range of tests.

Keywords: COVID-19; Operational link; Mutual fund performance; Idiosyncratic risk; Herding; Timing; Stock picking; Stock liquidity; Activeness; Diversification (search for similar items in EconPapers)
JEL-codes: G01 G14 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pa:s1057521924002412

DOI: 10.1016/j.irfa.2024.103309

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