Zhang, Ping; L , Zi-Xu; Liu, Jun-Ya
A icle
Flows, pe o mance, and in es o beha io : e idence om
mu ual unds in China
Cogen Economics & Finance
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Sugges ed Ci a ion: Zhang, Ping; L , Zi-Xu; Liu, Jun-Ya (2024) : Flows, pe o mance, and in es o
beha io : e idence om mu ual unds in China, Cogen Economics & Finance, ISSN 2332-2039,
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Flows, pe o mance, and in es o beha io :
e idence om mu ual unds in China
Ping Zhang, Zi-Xu L & Jun-Ya Liu
To ci e his a icle: Ping Zhang, Zi-Xu L & Jun-Ya Liu (2024) Flows, pe o mance, and in es o
beha io : e idence om mu ual unds in China, Cogen Economics & Finance, 12:1, 2373258,
DOI: 10.1080/23322039.2024.2373258
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FINANCIAL ECONOMICS | RESEARCH ARTICLE
Flows, pe o mance, and in es o beha io : e idence om mu ual
unds in China
Ping Zhang
a
, Zi-Xu L
a
and Jun-Ya Liu
b
a
School o Finance, Capi al Uni e si y o Economics and Business, Beijing, China;
b
School o Ma hema ics,
Uni e si y o No ingham, No ingham, England
ABSTRACT
This s udy examines he in es o beha io o mu ual unds in China. Ou esul s show li -
le e idence abou he edemp ion puzzle. We u he e u e he disposi ion e ec , ha
is, in es o s do no end o edeem unds wi h supe io pas pe o mance. Addi ionally,
ma ke condi ions a e c ucial o in es men decisions. In bull ma ke s, in es o s a e
p one o aking isks while being conse a i e and p uden du ing bad imes.
Conside ing in es o he e ogenei y, we ind ha ins i u ional in es o s alue he unds’
pas pe o mance me ics, assigning g ea e weigh o his o ical pe o mance. Bo h ins i-
u ional in es o s and indi idual in es o s show s onge sensi i i y o complica ed pe -
o mance indica o s in bad imes han good imes. Fu he mo e, we ind ha in es o s
in China chase o he s a unds. We also pe o m es s on he exis ence o he sma
money e ec , and he esul s show ha in es o s can sc een good unds om bad ones.
IMPACT STATEMENT
This s udy examines he in es o beha io o mu ual unds in China. Ou esul s show
li le e idence abou he edemp ion puzzle. We u he e u e he disposi ion e ec ,
ha is, in es o s do no end o edeem unds wi h supe io pas pe o mance.
Addi ionally, ma ke condi ions a e c ucial o in es men decisions. In bull ma ke s,
in es o s a e p one o aking isks while being conse a i e and p uden du ing bad
imes. Conside ing in es o he e ogenei y, we ind ha ins i u ional in es o s alue
he unds’pas pe o mance me ics, assigning g ea e weigh o his o ical pe o m-
ance. Bo h ins i u ional in es o s and indi idual in es o s show s onge sensi i i y o
complica ed pe o mance indica o s in bad imes han good imes. Fu he mo e, we
ind ha in es o s in China chase o he s a unds. We also pe o m es s on he
exis ence o he sma money e ec , and he esul s show ha in es o s can sc een
good unds om bad ones. O e all, his s udy o e s aluable insigh s in o he deci-
sion-making p ocesses o Chinese mu ual und in es o s, p o iding a mo e nuanced
unde s anding o hei beha io compa ed o es ablished inancial heo ies.
ARTICLE HISTORY
Recei ed 10 Ap il 2024
Re ised 4 June 2024
Accep ed 21 June 2024
KEYWORDS
Mu ual und; pe o mance;
in es o beha io ; bull
ma ke ; sma money
REVIEWING EDITOR
D Da id McMillan,
Uni e si y o S i ling, Uni ed
Kingdom o G ea B i ain
and No he n I eland
SUBJECTS
Finance; In es men &
Secu i ies; Co po a e
Finance
1. In oduc ion
Mu ual unds ha e he ad an ages o s ong liquidi y, p o essional in es men se ices, and high in o ma ion
anspa ency, which ha e a ac ed he a en ion o all ypes o in es o s, especially indi idual in es o s.
Acco ding o he Mu ual Fund Annual Repo issued by AMAC (Asse Managemen Associa ion o China), he
o al ne asse alue o mu ual unds is 27.60 illion yuan a he end o 2023, which is an impo an compo-
nen o he asse managemen indus y in China. Mu ual unds ha e inc easingly become a c ucial compo-
nen in in es o s’asse alloca ion. Indi idual in es o s play an impo an ole in he ma ke , o hey ha e
al eady cap u ed a signi ican po ion o he mu ual und ma ke . A he same ime, mo e han hal o he
in es o s end o di e si y hei po olios, holding i e o mo e mu ual unds, and 41.8% o hem ha e an
a e age holding pe iod o 1–3 yea s. Bu wha ac o s do indi idual and ins i u ional in es o s conce n in
und in es men ? I is o g ea signi icance o s udy hei beha io , which se es as a key ma ke d i e .
CONTACT Ping Zhang [email p o ec ed] School o Finance, Capi al Uni e si y o Economics and Business, Beijing, China.
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2373258
h ps://doi.o g/10.1080/23322039.2024.2373258
Compa ed o he capaci y o accommoda e a huge amoun o money, he inancial sys em es ablished
in China s ill has many de iciencies. Consequen ly, many in es o s a e inclined o pa icipa e in specula ion
and chase sho - e m e u ns. In es o s’i a ional beha io leads o many anomalies ha may di e om
hose o o he well-de eloped und ma ke s. Al hough a ious s udies ha e al eady discussed he con ex
ela ionship be ween mu ual und low and pe o mance (Aga wal e al., 2018; Ba be e al., 2016, F anzoni
& Schmalz, 2017; Ben-Da id e al., 2022; Be k & G een, 2004; Che alie & Ellison, 1997; Del Gue cio & Tkac,
2008; E ans & Sun, 2021; Jegadeesh & Mangipudi, 2021; Huang e al., 2007, Be k & Van Binsbe gen, 2016;
Kams a e al., 2017), we ocus p ima ily on in es o s’sophis ica ion in China’s mu ual unds. Whe he
mu ual und in es o s a e sophis ica ed enough o make he igh decisions unde di e en ma ke condi-
ions is s ill dispu ed. Fo ins ance, he edemp ion puzzle o pa adox o edemp ion e eals in es o beha -
io when making an in es men decision. I in es o s a e homo economics and sophis ica ed enough, hey
should edeem he und wi h low e u ns in ad ance, ins ead o being s uck up and alling in o he abyss
s ep by s ep. In his s udy, we in es iga e he exis ence o he edemp ion puzzle in he Chinese ma ke o
e eal he beha io o Chinese in es o s. Mo i a ed by Ba be e al. (2016), we di ide he whole sample in o
indi idual and ins i u ional in es o s based on in es o he e ogenei y and in es iga e whe he in es o s’
sophis ica ion can make a di e ence. Simul aneously, in es o beha io may be a ec ed by ma ke condi-
ions. F anzoni and Schmalz (2017) ind ha ma ke condi ions in luence in es o s’choice-making conside -
ably. The e o e, we also in es iga e he ela ionship be ween in es o s and hei conce ning ac o s in bull
and bea ma ke s o unde s and hei beha io unde di e en ci cums ances. In addi ion, he s a e ec
and sma money e ec a e also impo an in es o beha io s, so we discuss hese e ec s o make u he
e o s. In ui i ely, once in es o s edeem unds ha pe o med well in he pas and show he inclina ion o
ad e se selec ion, jus as bad money d i es ou good, unds wi h excellen pe o mance will be elimina ed
by he ma ke in his inconspicuous way. This may induce nega i e incen i es o und manage s and lead
o he malde elopmen o he mu ual und ma ke . To ensu e ha po olio manage s ecei e posi i e
incen i es, i is necessa y o explo e whe he nega i e incen i es exis in China’s mu ual und ma ke . In
o he wo ds, whe he a edemp ion puzzle exis s. In es o beha io is he basis o es ablishing a posi i e
incen i e o imp o e mu ual und ma ke e iciency.
The pe o mance– low ela ionship o igina es om he e ealed p e e ence heo y, showing ha
in es o s’buying and selling beha io can e lec hei conce ns alongside he exca a ion and explan-
a ion o in o ma ion. Tha is, mu ual und ne in lows can e eal in es o beha io . We use he aw
e u n, isk-adjus ed e u n, and Sha p a io as p oxies o in es o conce n. We i s explo e he ela ion-
ship be ween in es o lows and pe o mance o e eal in es o conce ns using Fama–MacBe h eg es-
sion eg essions. Ou indings e u e he disposi ion e ec as well as he edemp ion puzzle because he
ne in low o unds is bo h posi i ely co ela ed wi h cu en pe o mance and pas pe o mance. Nex ,
we in es iga e whe he in es o beha io is a ec ed by ma ke condi ions. We ind ha in es o s ake
g ea e isks in a bull ma ke . By con as , in es o s p io i ize und manage s’skills in bea ma ke s
because isk-adjus ed e u ns ha e become he mos impo an ac o , and in es o s a e much mo e
cau ious and es ablish a highe isk h eshold when making in es men decisions. Then, we conside
in es o he e ogenei y. Ou indings show ha all in es o s show i a ional beha io in a bull ma ke ,
bu pay close a en ion o pe o mance in a bea ma ke . Besides, ins i u ional in es o s a e mo e likely
o alue he unds’pas pe o mance me ics, ins ead o unning o e u ns in cu en pe iods. In u he
analysis, we in es iga ed he s a e ec and sma money e ec . We ind ha in es o s chase s a unds
and hey can iden i y and igu e ou he ou s anding unds o achie e sho - e m p o i s.
Ou indings con ibu e o he li e a u e in se e al ways. Fi s , i ela es o he li e a u e on he mu ual
und low-pe o mance ela ionship (Aga wal e al., 2018; Ba be e al., 2016, F anzoni & Schmalz, 2017;
Ben-Da id e al., 2022; Be k & Van Binsbe gen, 2016; E ans & Sun, 2021; Jegadeesh & Mangipudi, 2021;
Kams a e al., 2017). We ind ha he ne in low o unds is posi i ely co ela ed wi h cu en pe o mance
and pas pe o mance, e u ing he edemp ion puzzle and he disposi ion e ec . Second, we ind ha
bo h indi idual in es o s’and ins i u ional in es o s’beha io s a e sensi i e o ma ke condi ions.
Speci ically, in es o s can conque hei inwa d u ges and impulses in bea ma ke s, whe eas indi idual
in es o s become ela i ely i a ional and p one o no paying ha much a en ion o complica ed pe o m-
ance me ics wi h sophis ica ed isk models when alloca ing capi al in bull ma ke s (Aga wal e al., 2018;
Cli o d e al., 2021). Thi dly, he esul om he s a e ec indica es ha Chinese in es o s a e keen on
2 P. ZHANG ET AL.
unning a e s a unds and he sma money e ec in es iga ion also shows ha Chinese in es o s can
iden i y unds wi h po en ial, which means ha hey can sc een good unds om bad ones.
The emainde o his a icle is o ganized as ollows. Sec ion 2 b ie ly e iews ela ed li e a u e.
Sec ion 3 p o ides in o ma ion on he da a and he model speci ica ions. Sec ion 4 in oduces he
empi ical esul s and analysis. Sec ion 5 ex ends he in es iga ion o in es o beha io , and Sec ion 6
p o ides a obus ness check. The inal sec ion o his a icle o e s concluding ema ks.
2. Li e a u e e iew
2.1. In es o beha io
The low-pe o mance ela ionship is o gene al in e es among ac i ely managed unds (Che alie &
Ellison, 1997; Remolona e al., 1997; Si i & Tu ano, 1998). Pa el e al. (1991) a e he pionee s in he s udy
o he Pe o mance-In low Rela ionship (PFR), which documen s an asymme ic ela ionship be ween
mu ual und lows and pas pe o mance: unds wi h supe io ecen pe o mance a ac disp opo ion-
a ely in lows, while lose s do no su e many ou lows, and in es o s do no espond o unds wi h poo
pe o mance ei he . Kane e al. (1992) use di e en indica o s, such as he excess e u n, Sha pe Ra io,
and Jensen Ra io, o measu e und pe o mance, exploi ing he posi i e linea co ela ion be ween qua -
e ly TNA g ow h and pe o mance. S a ing om in es o conce ns, Del Gue cio and Tkac (2008) ind
ha Mo nings a a ings can signi ican ly a ec und lows. An upg ade by Mo nings a is always ol-
lowed by abno mal in lows in o he und in he nex pe iods immedia ely, and he 5-S a Ra ing unds
also enjoy he la ges cash low, indica ing ha Mo nings a Ra ings se e as an impo an c i e ion o
in es o s o judge a und. Taking he isk componen s in o conside a ion, Rakowski (2010) disco e ed a
nega i e c oss-sec ional ela ionship be ween und low ola ili y and isk-adjus ed pe o mance.
Fu he mo e, Cli o d e al. (2013) measu ed o al isk wi h a mon hly s anda d de ia ion, un olding he
posi i e co ela ion be ween isk and cash lows. Thei esul s show ha in es o s p e e high- isk unds
on a e age. In con as , Spiegel and Zhang (2013) p oposed ha he ela ionship be ween e u n and
lows is linea a e con olling o he e ogenei y, and he con exi y in he low esponse unc ion is
mainly d i en by he misspeci ica ion o he empi ical model. Malho a e al. (2014) show ha good go -
e nance o a und leads o imp o ed e u ns. El Ghoul and Ka oui (2017) begin wi h he con lic s
be ween pe o mance and social esponsibili y o unds, cons uc ing he asse -weigh ed composi e co -
po a e social esponsibili y (CSR) und sco e o s udy i s impac . The esul s show ha , compa ed wi h
low-CSR unds, high-CSR unds ha e a less con ex PFR and s onge pe o mance pe sis ence. Ha and Ko
(2019) ex end he esea ch by Spiegel and Zhang (2013), disco e ing ha he e a e misspeci ica ions in
he low-pe o mance ela ionship when conside ing in es men s yle-adjus ed e u ns ins ead o he
ank o aw e u ns. Ha ey and Liu (2019) also ind ha he anking o unds’alphas canno p edic ne
capi al low. El Ghoul and Ka oui (2021) s udy he consequence o changing a “g een”name ha is sus-
ainabili y- ela ed and hey ind ha he unds expe ience no subs an ial pe o mance imp o emen and
s ill enjoy much cash in low. P
as o and Vo sa z (2020) use a special sample o U.S. mu ual unds du ing
he 2020 COVID-19 c isis and ind ha ne ou lows su pass he p e-c isis ends, and in es o s a e will-
ing o in es in unds wi h sus ainable a ings, which means ha in es o s ake he pe sis ence o pe -
o mance as he op p io i y du ing his pandemic. Unde he salience heo y, Muge man e al. (2022)
ind ha he isk salience o unds h ough name change can impac he in es o s’in lows. Fu he mo e,
Is aeli e ail in es o s espond o he ee changes (Muge man & S einbe g, 2023), which coincides wi h
he no ion ha e ail in es o s a e ac i e and a en i e owa d he managemen ee.
In he Chinese ma ke , some p io li e a u e inds e idence o he “Pa adox o Redemp ion,” ha is,
in es o s edeem unds wi h good pe o mance while holding unds wi h poo pe o mance. They show
a signi ican nega i e co ela ion be ween sho - e m und e u ns and ne capi al lows, and some also
eco d a posi i e co ela ion be ween he und’s qua e ly e u n and he edemp ion a io. While o he
o eign li e a u e a ains comple ely di e en esul s, Edelen and Wa ne (2001) s udy U.S. equi y mu ual
und low and he esul s show ha p io ma ke e u ns co ela e posi i ely wi h mu ual und low,
e ealing he mechanism o posi i e eedback ading. Be k and G een (2004) cons uc a pa simonious
a ional model o an ac i e-managed po olio, disco e ing ha und lows can espond o hei pas
COGENT ECONOMICS & FINANCE 3
pe o mance in a p ope way. Gene ally, in es o s can lea n abou po olio manage s’abili ies h ough
hei pe o mance eco ds. Huang e al. (2007) ex end Be k and G een (2004) and inco po a e pa icipa-
ion cos s in o hei a ional model, showing ha he sensi i i y o he pa icipa ion cos esponds o
low disp opo iona ely. F om he pe spec i e o in es o s’sophis ica ion, Ba be e al. (2016) ind ha
he CAPM-adjus ed alpha has he s onges abili y o p edic ne capi al low. Mo e a en ion is paid o
sys emic isks, while o he complica ed isk ac o s, such as SMB, HML, RMW, and CMA, a e igno ed.
They a ibu e his phenomenon o he unsophis ica ion o U.S. mu ual und in es o s. In addi ion,
Aga wal e al. (2018) ind ha CAPM alpha can be e explain he in- and ou -o - und lows and he ela-
ionship be ween und e u ns and lows is posi i e. The e o e, gi en he ac ha he Chinese mu ual
und ma ke is s ill on he highway o de elopmen , whe he in es o s make he “Ad e se Selec ion”
and he exis ence o he “Redemp ion Puzzle”is s ill unclea and needs o be examined p ope ly. We
can also de e mine he ac o s ha in es o s ca e abou ha can e eal hei p e e ences.
2.2. In es o he e ogenei y
In gene al, ins i u ional in es o s can se e as s abilize s o he capi al ma ke due o hei p o essional
skills and in o ma ion ad an ages, bu Keswani and S olin (2008) hold he belie ha ins i u ions ha e
ob ious sho comings when i comes o he p incipal–agen ela ionship be ween ins i u ions and
in es o s. This gap in mo i a ions and in e es s may induce ins i u ions o ake ac ions ha ha m in es -
o s. In con as , Odean (1998) belie es ha indi idual in es o s lack p ac ical expe ience and a e p one
o cogni i e biases when making in es men choices. They spa e no e o o maximize hei in e es s. In
a e ailed-in es o -domina ed ma ke , Gue cio and Reu e (2014) ound ha und manage s can ob ain a
posi i e isk-adjus ed e u n and bea he benchma k h ough ac i e managemen . Jiang and Yuksel
(2017) examine he low-pe o mance ela ionship o di e en classes o U.S. domes ic equi y unds. The
PFR o he e ail class is much s onge han ha o he ins i u ional class, and hey show ha he
esul is mainly d i en by ne und ou low. Fu he , Mazu e al. (2017) use da a om e ail and ins i u-
ions o in es iga e he PFR ela ionship sepa a ely, and hei esul s a e in line wi h Jiang and Yuksel
(2017), who ind ha he obse ed con exi y is mo e p onounced o e ail unds. Boe mans and
Ve meulen (2020) ound ha in es o he e ogenei y signi ican ly a ec s in e na ional in es men posi-
ions. Fu he mo e, Huang e al. (2022) p opose ha sophis ica ed in es o s, who lea n om his o ical
und pe o mance o shape hei expec a ions o manage ial abili y, exhibi weake PFR o hose wi h
ola ile pas pe o mance. I seems ha in es o s end o beha e di e en ly due o hei he e ogenei y;
he e o e, we di ide in es o s by hei iden i y and s udy hei beha io s alongside conce ns.
2.3. Bull and bea ma ke
Cao e al. (2008) used he VAR me hod and daily mu ual und low da a o unco e he dynamic ela-
ionship be ween agg ega e low and ma ke ola ili y. de And ade (2009) inds ha ma ke condi ions
a ec in es o s’beha io , and empi ical esul s show ha in es o s a e mo e inclined o unds ha pe -
o m well du ing he slump. Conside ing he g ea in luence o he mu ual und ma ke , Ben-Rephael
e al. (2012) measu e in es o sen imen acco ding o und lows, hey ind e idence ha lows a e posi-
i ely co ela ed wi h he ma ke , which suppo s ha he e a e “noises”in he agg ega e ma ke p ices.
Chen and Qin (2017) ocus on money lows in co po a e bond unds and disco e ha lows a e sensi-
i e o ecen e u ns and con empo aneous ma ke si ua ions. Thus, Cagnazzo (2022) p o es ha he
posi i e co ela ion be ween capi al low and u u e pe o mance is only signi ican du ing pe iods o
high sen imen , which is mainly d i en by he expec ed componen o capi al low. When ma ke sen i-
men is high, mu ual und in es o s show signi ican nega i e iming abili y o speci ic unds. The e o e,
i is necessa y o conside he s a e o he ma ke when discussing mu ual und low- ela ed ques ions.
2.4. S a e ec and sma money e ec
A posi i e ela ionship exis s be ween und pe o mance and ne capi al low: he non-linea o asym-
me ic ela ionship is s eep a bo h ends and gen le in he middle, which means ha becoming a s a
4 P. ZHANG ET AL.
und will b ing disp opo iona ely high managemen ees o he mu ual und company. The e o e, op-
anked unds a e pa icula ly a ac i e o in es o s in acco dance wi h he s a e ec . Howe e , when
he unds do no pe o m well in he pas , in es o s may hold he belie ha he lose und will expe i-
ence mean e e sion sho ly and con inue o hold hem ins ead o s opping he loss. The ela ed docu-
men s a e as ollows: Nanda e al. (2004) use he Fama-F ench h ee- ac o model as he pe o mance
indica o and de ine he unds ha ank abo e he op 5% as s a unds. His o ical e u ns ha e a signi i-
can impac on cu en ne capi al low. In addi ion, he s a und has a spillo e e ec ; unds in he
same amily also expe ience addi ional capi al in lows. Kemp and Ruenzi (2004) s udied he pe o mance
o mu ual unds om he pe spec i e o amily s a egy, e ealing ha he g ow h o a und depends
on i s ela i e posi ion wi hin he amily. Alongside he epu a ion heo y, Huang e al. (2020) illus a e
how in es o s a ionally espond o s a a ings assigned o mu ual unds. They show ha he upg ades
in s a a ing o unds can lead o in lows al hough he s a a ings do no con ey new in o ma ion.
Fu he mo e, Wang (2024) obse es ha non-s a unds pump up hei po olios o s a unds o
imp o e hei end-o -pe iod pe o mance. Speci ically, hey achie e his by pu chasing s ocks al eady
held by he s a unds wi hin he amily, exhibi ing he pa e n o amily subsidiza ion.
S udies such as G ube (2011) disco e he exis ence o he sma money e ec and show ha his
e ec pe sis s and weakens o e ime. Zheng (1999) was he i s o p opose he sma money e ec o -
mally, sugges ing ha unds wi h cash in lows will ha e posi i e isk-adjus ed e u ns. Al hough unds
canno be sho ened, i is di icul o cons uc a po olio using long/sho s a egies. We me s (2003)
uses und da a om 1975 o 1994, showing ha in es o s can ha dly p o i by acking unds’ e ealed
posi ions due o he inconsis ency in und pe o mance. Keswani and S olin (2008) dis inguish he in low
and ou low o unds o es he sma money e ec , showing ha when new cash in lows occu , und
pe o mance is signi ican ly highe han hose wi h low in lows. They sugges ed ha his is caused by
subsc ip ion a he han edemp ion. On he o he hand, F azzini and Lamon (2008) poin ou ha
unds chased by in es o s will ha e lowe e u ns in he nea u u e, and ha he sma money e ec
only exis s in he sho e m (3–6 mon hs). Klinkowska and Zhao (2023) obse e a posi i e con ex PFR
o e ail Socially Responsible In es men (SRI) unds. Su p isingly, hey do no ind e idence suppo ing
he sma money e ec o e ail SRI unds in he US mu ual und ma ke . Ins ead, hey iden i y a “dumb
money”e ec among SRI ins i u ional unds. In he domes ic ma ke , Feng e al. (2014) ind ha
Chinese in es o s a e unable o selec supe io unds. The unds ha ecei ed mo e cash lows subse-
quen ly pe o med wo se han o he unds, and u he es s sugges ha ins i u ional in es o s ha e
he sma money e ec , while indi iduals only show he s upid money e ec .
3. Da a sample and Empi ical model
3.1. Da a sample
Ou da a a e om he CSMAR and RESET mu ual und da abases, which co e ac i ely managed Chinese
domes ic equi y mu ual unds om Janua y 2011 o Decembe 2023. Conside ing incuba ion and back-
illing bias, unds es ablished o less han one yea we e excluded. Fo und pe o mance, we employ
mon hly da a and a wo-yea olling window o es ima e he alpha o unds ha mee he equency o
in o ma ion a ailable. A he same ime, we only keep unds wi h s ocks accoun ing o a leas 80% o
hei posi ions. Ou inal sample con ains 2876 ac i e equi y mu ual unds om 148 und amilies.
3.2. Empi ical model
3.2.1. In es o conce ns
The co e issue discussed in his a icle is he ac o s ha ma e o in es o s when making decisions. Is
i he aw e u n, isk-adjus ed alpha, o sha p a io? We s udy which ac o s in es o s a end o by ana-
lyzing he ne lows o unds as a unc ion o his o ical pe o mance indica o s, e ealing in es o con-
ce ns using he ollowing o mula:
lowi: ¼aþb1 ac o i: þbXkcon olsi: þkiþ þli, (1)
COGENT ECONOMICS & FINANCE 5
whe e lowi: is he ne in low o und iin qua e , ac o i: ep esen s he co esponding in es o s’con-
ce ning ac o s. The coe icien o in e es is b1, which e lec s he sensi i i y o in es o s o ac o i: , and
con olsi: :We also include he und ixed e ec kiand ime- ixed e ec in he eg ession, li, is he
e o e m o he model.
3.2.2. Ma ke condi ion
As in es o beha io and conce ns may change unde di e en ma ke condi ions (Ba be e al., 2016;
Gue cio & Reu e , 2014), we conside he ma ke s a e, which con ains bull and bea ma ke s.
Speci ically, we de ine he i s qua e o 2011 o he second qua e o 2014, he hi d qua e o 2015
o he ou h qua e o 2019, he i s qua e o 2020 o he ou h qua e o 2023 as he bea ma ke ,
and he hi d qua e o 2014 o he second qua e o 2015, he i s qua e o 2020 o he las qua e
o 2020 as he bull ma ke , acco ding o he ma ke index. We hen in es iga e whe he ma ke condi-
ions ma e in hei decision-making o pe o m on model (1).
3.2.3. In es o he e ogenei y
Daniel e al. (1997) and Odean (1998) p opose ha he a ionali y o ins i u ional and indi idual in es o s
is qui e di e en , and his he e ogenei y can make hem pay a en ion o di e en ac o s a ec ing und
pe o mance. Consis en wi h Boe mans and Ve meulen (2020), he he e ogenei y o in es o s will make
a di e ence in in es o s’p e e ence o in es men posi ions, so we classi y he ne und lows in o
in lows om ins i u ional in es o s lowins and he low om indi idual in es o s lowind, as shown in o -
mula (2):
lowinsi, ð lowindi, Þ¼aþb1 ac o i: þbXkcon olsi: þkiþli, (2)
3.3. Desc ip ion o a iables
3.3.1. Calcula ion o alpha
When assessing a und manage ’s skill, in es o s should conside all po en ial ac o s ha may explain
he c oss-sec ional a ia ion in mu ual und pe o mance. Unde he speci ica ion o asse p icing, e u ns
can be decomposed in o excess e u ns (alpha) and ac o - ela ed e u ns. A a ional in es o will spa e
no e o o seek a mu ual und ha is able o deli e a pu e alpha. Besides, he pe sis ence o excess
e u n in he long e m can be e e lec he in es men skill. Following he li e a u e, his a icle adop s
CAPM and Fama-F ench h ee ac o s model (Fama & F ench, 1993) o calcula e he adjus ed excess
e u n, which has p o ed ha hey a e sui able and e ec i e in Chinese ma ke s. We es ima e alpha
wi h he CAPM and Fama-F ench h ee ac o s model. We use he olling window o he pas 24 mon hs
o es ima e he CAPM and Fama-F ench h ee ac o s model alpha.
To con e mon hly alpℎain o qua e ly alpℎaand ma ch he da a, we use he ollowing me hod o
compu e he qua e ly alpℎa:
ai,n¼1þai,3n−2
ðÞ
1þai,3n−1
ðÞ
1þai,3n
ðÞ
−1 (3)
whe e ai,nis he isk-adjus ed excess e u n o und iin qua e n, and ai,3n−2,ai,3n−1,ai,3n ep esen
he isk-adjus ed excess e u ns in he co esponding mon h.
3.3.2. Ne und low
Acco ding o Ba be e al. (2016), o und iin qua e , he ne low a io is calcula ed as ollows:.
lowi, ¼TNAi,
TNAi, −1
−1þ e u ni,
ðÞ (4)
whe e TNAi, is he o al ne asse o und iin qua e , and e u ni, is he aw e u n. In addi ion, we
compu e he ne in low om ins i u ional in es o s’ lowins and indi idual in es o s lowind conside ing
in es o he e ogenei y:
lowinsi, ¼ insi, TNAi,
TNAi, −1
−1þ e u ni,
ðÞ
insi, −1(5)
6 P. ZHANG ET AL.
lowindi, ¼ indi, TNAi,
TNAi, −1
−1þ e u ni,
ðÞ
indi, −1(6)
whe e ins and ind ep esen he p opo ion o ins i u ional and indi idual und sha eholdings, espec -
i ely, sa is ying ins þ ind ¼1:
3.3.3. Sha p a io
In addi ion o aw e u ns and isk-adjus ed e u ns, we use he Sha pe a io as ano he ac o o in es o
conce n, which is easily accessed by in es o s:
Sha pe a ioi, ¼ e u ni, − e u n
sigmai,
(7)
3.3.4. The con ols
We con olled o a ich se o und cha ac e is ics. The con ol a iables include und size ( nai, ), ola il-
i y (sigmai, ), di idends (didpsha ei, ), und age (agei, ), and ma ke e u ns ( e u n index ).
Fe ei a e al. (2013) showed ha la ge unds ha e highe isibili y and a e mo e likely o be con-
ce ned wi h in es o s. To al ne asse s a e an impo an ac o o in es o s and a key ac o independ-
en o he und’s pe o mance. The e o e, we include he log o und size in he con ols:
nai, ¼logðTNAi, Þ(8)
whe e TNAi, is he o al ne asse o undiin qua e :
As he beha io al inance heo y sugges s, in es o s a e isk-a e se and seek o maximize hei p o i s
while aking he lowes isk. The iskiness o an asse can signi ican ly a ec in es o beha io , and some
s udies also include he s anda d de ia ion o aw e u ns as con ols.
sigmai, ¼ i, (9)
whe e i, is he daily s anda d de ia ion o undiin qua e :
The di idends o a und ha e a g ea impac on in es o s’ edemp ion beha io (Ha is e al., 2015;
Nanda e al., 2000), we inco po a e he di idend pe sha e o he und in o con ols, and he di idend
a io is as ollows:
didpsha ei, ¼Di,
Ni,
(10)
whe e Di, is he o al di idend o he undia qua e o ,Ni, is he numbe o sha es o he undia
he end o qua e :
Che alie and Ellison (1997) disco e ed ha he du a ion o unds can a ec he sensi i i y o a und’s
ne capi al low o ecen e u ns. To educe his impac , agei, was added o he con ols.
Conside ing ha mu ual und ee changes ha e an impac on e ail in es o eac ions (Muge man &
S einbe g, 2023), we also in oduce he unds’managemen ee in o ou con ol.
Since all equi y mu ual unds a e closely co ela ed wi h ma ke s a es, we also include ma ke e u ns
in ou con ols:
e u n index ¼index
index −1
−1 (11)
whe e index is he CSI300 index a he end o he qua e o :
4. Empi ical esul s and analysis
4.1. Desc ip i e s a is ics
Ou sample included 2876 ac i e equi y mu ual unds om Ma ch 2011 o Decembe 2023. Table 1 p o-
ides desc ip i e s a is ics and co ela ion ma ices o he en i e sample. Panel A p esen s desc ip i e
s a is ics on he cha ac e is ics ac oss und-qua e obse a ions. In e es ingly, in es ing in mu ual unds
is p o i able o China. The und’s a e age qua e ly e u n is 1.3% and i s isk-adjus ed e u ns can e en
COGENT ECONOMICS & FINANCE 7
in es o s’conce ns ei he . I seems ha du ing he pandemic, in es o s a e mo e cau ious abou he
pe o mance o unds. In summa y, ou indings exhibi obus ness ac oss a ious scena ios. Speci ically,
we obse e consis en esul s when modi ying a iable de ini ions, adjus ing model speci ica ions, and
al e ing me hodological se ings (Table 9).
7. Conclusions
In his s udy, we p o ide new insigh s in o in es o beha io s and d i ing ac o s by employing he
Fama–MacBe h eg ession me hod. Speci ically, we use he und’s aw e u n, isk-adjus ed e u n, and
Sha p a io as p oxies o in es o conce ns, and ne in low as in es o beha io . We ind a posi i e ela-
ionship be ween in es o conce ns and und lows, indica ing ha no edemp ion puzzle exis s in he
Chinese capi al ma ke . The CAPM alpha has a conside ably g ea e impac han he Fama-F ench h ee-
ac o model alpha owing o he absence o sophis ica ion among in es o s who a e mo e amilia wi h
CAPM, which is easily accessible and obse ed ac oss mul iple channels o pla o ms. In addi ion, we
ind ha in es o s in China doesn’ exhibi he disposi ion e ec , ha is, edeem unds wi h supe io
isk-adjus ed excess e u ns while expec ing he lose und o pe o m well in he u u e. Nex , we
explo e whe he in es o beha io is a ec ed by ma ke condi ions. In a bull ma ke , in es o s end o
exhibi mo e da ing in es men beha io , o en paying less a en ion o ma u e pe o mance me ics.
When i comes o a bea ma ke , in es o s sc u inize und manage s’skills because isk-adjus ed e u ns
ha e become a c i ical ac o , and in es o s a e conside ably mo e cau ious when making in es men
decisions. Fu he , we explo e whe he ins i u ional and indi idual in es o s ha e di e en ac o s o
conce n. We also ind a posi i e ela ionship be ween in es o conce ns and ne in lows, and hese ac-
o s bo h ha e g ea impac on ins i u ional in es o s and indi idual in es o s. In a bull ma ke , all
in es o s may exhibi i a ional beha io . Howe e , ins i u ional in es o s ocus on hei pe o mance in
bea ma ke s. In u he analysis, we examine he exis ence o he s a e ec and sma money e ec .
Ou esul s show ha in es o s do chase s a unds and can iden i y ou s anding unds o achie e sho -
e m p o i s, hus suppo ing he exis ence o he sma money e ec .
O e all, he ne in low o unds is posi i ely co ela ed wi h cu en and pas pe o mance. In es o s
a e no likely o edeem unds wi h high his o ical e u ns, demons a ing hey ca e mo e abou wha
hey migh ha e la e when hey a e ahead. Ou indings e u e he exis ence o he disposi ion e ec as
well as he edemp ion puzzle. Mo eo e , in es o s’beha io unde goes changes when conside ing he
ma ke en i onmen and in es o he e ogenei y. They a e a ional in a bea ma ke and agg essi e and
i a ional in a bull ma ke . Bo h he ins i u ional in es o s and indi idual in es o s a e mo e sensi i e o
complex pe o mance indica o s du ing bad imes han good imes.
Au ho s’con ibu ions
Ping Zhang: Concep ualiza ion, Me hodology, Empi ical analysis, W i ing–o iginal d a , e iew & edi ing. Zi-Xu L :
Empi ical analysis, W i ing–o iginal d a . Jun-Ya Liu: Me hodology, Empi ical analysis, W i ing–o iginal d a .
Disclosu e s a emen
The au ho s decla e ha he esea ch was conduc ed in he absence o any comme cial o inancial ela ionships
ha could be cons ued as a po en ial con lic o in e es .
Funding
No unding was ecei ed.
Abou he au ho s
Ping Zhang, Associa e P o esso , Doc o Supe iso , School o Finance, Capi al Uni e si y o Economics and Business,
Beijing, China, esea ch ield: Empi ical Asse P icing.
14 P. ZHANG ET AL.
Zi-Xu L , Mas e o Finance, School o Finance, Capi al Uni e si y o Economics and Business, Beijing, China, esea ch
ield: Empi ical Asse P icing.
Jun-Ya Liu, Mas e o Finance, School o ma hema ics, Uni e si y o No ingham, No ingham, England.
ORCID
Ping Zhang h p://o cid.o g/0000-0002-8273-2269
Da a a ailabili y s a emen
All he da a come om he CSMAR and RESET mu ual und da abases. The CSMAR da abase and RESET da abases
a e wo p o essional da a p o ide s, and he au ho ’s uni e si y has ob ained access o hese wo da a p o ide s.
The da a ha suppo he indings o his s udy a e a ailable om he co esponding au ho , Ping Zhang, upon ea-
sonable eques .
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