Optimal information production of mutual funds: Evidence from China

Yeguang Chi, Jingbin He, Fei Wu and Bijiao Yin

Journal of Banking & Finance, 2022, vol. 143, issue C

Abstract: This study demonstrates that Chinese stock mutual funds exhibit persistent preference for growth stocks over value stocks. Despite the positive premium of value stocks over growth stocks, funds in aggregate manage to beat the market. Moreover, growth-oriented funds do not underperform their value-oriented peers. To solve these puzzles, we provide evidence for funds’ superior skill in picking growth stocks over value stocks, and conclude that such skill helps explain their growth tilt. Furthermore, we show that mutual funds trade against the retail investors, more so in growth stocks than in value stocks. Coupled with our finding that retail investors make more mistakes trading growth stocks than trading value stocks, we conclude that mutual funds optimize their information production to focus more on growth stocks so as to maximize returns.

Keywords: Mutual funds; Performance attribution; Value premium; Portfolio choice (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:143:y:2022:i:c:s0378426622001819

DOI: 10.1016/j.jbankfin.2022.106585

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