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How Do Mutual Funds in China Exploit Investor Sentiment?

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Listed:
  • Jian Wang
  • Shangkun Yi
  • Xiaoting Wang
  • Jun Yang
  • Zhongzhong Jiang

Abstract

Mutual funds in China that invest heavily in stocks with high sentiment beta deliver poorer performance when standard risk factors and fund characteristics are controlled. However, these funds attract more new investment, which is somewhat puzzling. Funds adopting such a sentiment-catering strategy follow less idiosyncratic strategies and tend to increase risk taking. The impact of fund sentiment beta is more significant in bull markets than in bear markets, and more pronounced for growth and balanced funds than for value funds. Together, the findings suggest that Chinese mutual funds exploit investor sentiment for self-serving purposes.

Suggested Citation

  • Jian Wang & Shangkun Yi & Xiaoting Wang & Jun Yang & Zhongzhong Jiang, 2021. "How Do Mutual Funds in China Exploit Investor Sentiment?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(14), pages 4020-4035, November.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:14:p:4020-4035
    DOI: 10.1080/1540496X.2020.1784715
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    Cited by:

    1. Yi, Shangkun & Wang, Jian & Wang, Xiaoting & Feng, Hongrui, 2022. "CEO political connection and stock sentiment beta: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

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