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Investor sentiment and mutual fund flow‐performance sensitivity: Evidence from China

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  • Yuling Wu
  • Xueyong Zhang

Abstract

This paper explores the relationship between investor sentiment and flow performance sensitivity of mutual funds in China. We first find that fund flow is positively related to performance in the past quarter and negatively associated with performance in the current quarter. Using a machine learning technique to establish proxies for investor sentiment, we show that positive sentiment mitigates this negative correlation by relieving investors' anxiety about risk and decreasing redemption. The effect is more pronounced in retail dominated funds, volatile markets and growth style funds. This finding is robust after controlling for investor attention, sentiment divergence and percentile return rankings.

Suggested Citation

  • Yuling Wu & Xueyong Zhang, 2024. "Investor sentiment and mutual fund flow‐performance sensitivity: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(S1), pages 5133-5167, December.
    • Handle: RePEc:bla:acctfi:v:64:y:2024:i:s1:p:5133-5167
    DOI: 10.1111/acfi.13370
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    References listed on IDEAS

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