Portfolio pumping and fund performance ranking: A performance-based compensation contract perspective

Xiangwen Li and Wenfeng Wu

Journal of Banking & Finance, 2019, vol. 105, issue C, 94-106

Abstract: We collect compensation policy data from 60 Chinese mutual fund companies, which cover 88% of the assets managed by all active stock and stock-oriented hybrid mutual funds in China. Using the collected data, we investigate portfolio pumping from a performance-based perspective. We find that portfolio pumping is stronger for funds ranking around critical points of performance distribution (i.e., the top one-tenth, one-fourth, one third, and half cutoffs). This finding is mainly driven by funds from companies that set these critical points to grade fund managers’ bonus levels. Our findings provide evidence of portfolio pumping motivated by performance ranking instead of the flow-performance relationship documented in prior studies.

Keywords: Portfolio pumping; Performance ranking; Mutual fund; Winner funds; Compensation; China (search for similar items in EconPapers)
JEL-codes: G11 G12 G19 G23 J33 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:105:y:2019:i:c:p:94-106

DOI: 10.1016/j.jbankfin.2019.05.020

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