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The “Betting” behavior of mutual fund families

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  • Wu, Yanran
  • Meng, Lili

Abstract

In a world where investors often gamble on the next “big win,” this study exposes the hidden motives and conflicts of interest driving mutual fund families to adopt lottery-like stock strategies. Using a sample of Chinese open-end mutual funds from 2004 to 2022, we find that fund families engage in “betting” by encouraging most, if not all, of their affiliated funds to pursue aggressive lottery-based investments. Although Chinese fund investors do not exhibit a distinct preference for lottery-like stocks, they do chase short-term performance. Our findings suggest that whether fund families can boost fund inflows through a lottery-based strategy hinges on their ability to deliver strong performance. However, fund investors do not hold the entire family of funds, and the performance of individual funds reverses in the latter half of the year—even for those within the most aggressive fund families. As a result, while fund families secure a “double win,” the associated risks and potential losses are ultimately borne by the investors.

Suggested Citation

  • Wu, Yanran & Meng, Lili, 2025. "The “Betting” behavior of mutual fund families," Finance Research Letters, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325002454
    DOI: 10.1016/j.frl.2025.106981
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G40 - Financial Economics - - Behavioral Finance - - - General

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