Information Transfer in the Common Shareholder Relationship: Mutual Fund Company and Its Invested Firms

39 Pages Posted: 1 Feb 2017

See all articles by Shu Lin

Shu Lin

Nanjing University - School of Business, Department of Accounting

Grace Tian

Asian Development Bank

Lu Zheng

University of California, Irvine - Paul Merage School of Business

Date Written: October 2016

Abstract

This paper identifies a novel channel of information transfer in a common shareholder (CS) relationship, in which a shareholder of a fund management company (FMC) also has a substantial stake in a listed company held by the FMC. We find that the holdings of common shareholder–connected FMCs exhibit stronger predictability in stock returns over horizons from subsequent 3 months to 24 months than those of unconnected FMCs. Further investigation examines the nature of the information transmission. Evidence suggests that the transmitted information is not a leak of non-public material corporate events but more related to long-term corporate fundamental information. An investment strategy based on the common shareholder relationship realizes an annualized return of at least 3.33%. Overall, the common shareholder relationship benefits fund investment, especially in the long run.

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

JEL Classification: G14, G11, G23

Suggested Citation

Lin, Shu and Tian, Shu and Zheng, Lu, Information Transfer in the Common Shareholder Relationship: Mutual Fund Company and Its Invested Firms (October 2016). Available at SSRN: https://ssrn.com/abstract=2909566 or http://dx.doi.org/10.2139/ssrn.2909566

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 (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Lu Zheng

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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