Portfolio Distortions Among Institutional Investors - Evidence from China

40 Pages Posted: 18 Apr 2012 Last revised: 23 Sep 2014

See all articles by Tao Huang

Tao Huang

Beijing Normal University-Hong Kong Baptist University United International College

Yuancheng Hu

Jiangxi University of Finance and Economics

Yang Wang

Jiangxi University of Finance and Economics

Weidong Zhang

Jiangxi University of Finance and Economics

Date Written: April 16, 2012

Abstract

The behavior of institutional investors often deviates from established personal or social norms, which may reflect either an informational advantage or psychological bias. In this paper, we investigate the incentives of Chinese mutual funds holding lottery-type stocks, which are characterized by low average returns and high risk. We find that funds at the aggregate level do not exhibit a propensity to gamble, but when they do, they earn abnormal returns on lottery-type investments. Gambling-related out performance is greater among held firms with characteristics which enable fund managers to obtain more informational advantages. Our results suggest that portfolio distortion is driven by the ability of managers to capitalize private information rather than by behavioral bias.

Keywords: gambling, mutual fund performance, informed trading

JEL Classification: G11, G23

Suggested Citation

Huang, Tao and Hu, Yuancheng and Wang, Yang and Zhang, Weidong, Portfolio Distortions Among Institutional Investors - Evidence from China (April 16, 2012). Available at SSRN: https://ssrn.com/abstract=2041017 or http://dx.doi.org/10.2139/ssrn.2041017

Tao Huang (Contact Author)

Beijing Normal University-Hong Kong Baptist University United International College ( email )

2000 Jintong Road
Zhuhai, Guangdong 519087
China

Yuancheng Hu

Jiangxi University of Finance and Economics

South Lushan Road
Nanchang, Jiangxi 330013
China

Yang Wang

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Weidong Zhang

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

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