Belief dispersion in the Chinese stock market and fund flows

Yue Fang, Deming Luo and Zhongwei Yao

Journal of Banking & Finance, 2024, vol. 166, issue C

Abstract: This study explores how Chinese mutual fund managers’ degrees of disagreement (DOD) on stock market returns affect investor capital allocation decisions using a novel text-based measure of expectations in fund disclosures. In the time series, the DOD negatively predicts market returns. Cross-sectional results show that investors correctly perceive the DOD as an overpricing signal and discount fund performance accordingly. Flow-performance sensitivity (FPS) is diminished during high dispersion periods. The effect is stronger for outperforming funds and funds with substantial investments in bubble and high-beta stocks, but weaker for skilled funds. We also discuss the financial sophistication of investors and provide evidence that our results are not contingent upon such sophistication.

Keywords: Mutual fund; Stock market expectation; Belief dispersion; Flow-performance sensitivity; Textual analysis (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:166:y:2024:i:c:s0378426624001663

DOI: 10.1016/j.jbankfin.2024.107252

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