Stockholm School of Economics Asia Working Paper Series
Anders C. Johansson
Can Mutual Funds Pick Stocks in China? Evidence from the IPO Market
() and Xunan Feng
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
fundís underlying expectation of newly listed firmsí 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. This result is also
robust to different specifications and alternative explanations such as
mutual fund preferences or monitoring effects.
Keywords: Mutual funds; Stock picking ability; IPO; China; (follow links to similar papers)
JEL-Codes: G15; G23; G30; L25; (follow links to similar papers)
66 pages, September 12, 2014
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