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Can mutual funds pick stocks in China? Evidence from the IPO market

Xunan Feng and Anders Johansson ()

Journal of Banking & Finance, 2015, vol. 55, issue C, 170-186

Abstract: This study examines the stock-picking ability of mutual funds in China using evidence from the IPO market. We hypothesize that the decision to invest in the IPO market contains positive information about a fund’s underlying expectation of newly listed firms’ future prospects. Using residuals from a model on the determinants of mutual funds purchases in the IPO market as proxy for consensus expectations, we find that IPO firms with high residual funds have significantly better stock returns and operating performance than those with low residual funds. In other words, residual funds can predict IPO future performance. These results are also robust to different specifications and alternative explanations such as mutual fund preferences or monitoring effects.

Keywords: Mutual funds; Stock picking ability; IPO; China (search for similar items in EconPapers)
JEL-codes: G15 G23 G30 L25 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:55:y:2015:i:c:p:170-186

DOI: 10.1016/j.jbankfin.2014.12.026

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