Information Transfer in the Common Shareholder Relationship: Does Shared Ownership Affect Fund Investments?

37 Pages Posted: 5 Apr 2014

See all articles by Shu Lin

Shu Lin

Nanjing University - School of Business, Department of Accounting

Shu Tian

Asian Development Bank

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Date Written: April 3, 2014

Abstract

This paper identifies information transfer in a common shareholder relationship, in which a shareholder of a fund management company (FMC) also has a large stake in the listed company held by the FMC. We find that mutual funds prefer stocks with common shareholder links. Moreover, the holdings of common shareholder-connected FMCs exhibit stronger predictability in stock returns over a 3- to 36-month investment horizon than those of unconnected FMCs. An investment strategy based on the common shareholder relationship realizes an annualized return of at least 3.96%. Further investigation suggests that this information advantage is not driven by leaks of non-public information around major corporate news announcements. Overall, the common shareholder relationship appears to provide funds with fundamental information regarding the long-run stock performance.

Keywords: mutual funds, information advantage, stock returns, portfolio decisions

JEL Classification: G10, G14, G20

Suggested Citation

Lin, Shu and Tian, Shu and Zheng, Lu, Information Transfer in the Common Shareholder Relationship: Does Shared Ownership Affect Fund Investments? (April 3, 2014). Available at SSRN: https://ssrn.com/abstract=2420138 or http://dx.doi.org/10.2139/ssrn.2420138

Shu Lin

Nanjing University - School of Business, Department of Accounting ( email )

22 Hankou Road
Nanjing, Jiangsu 210093 210093
China
86-25-83621065 (Phone)
86-25-83621065 (Fax)

Shu Tian

Asian Development Bank

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Manila, Metro Manila 1550
Philippines
63-2-6324915 (Phone)

Lu Zheng (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
9498248365 (Phone)

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