The Economic Impact of Distributing Financial Products on Third-Party Online Platforms

59 Pages Posted: 5 Nov 2019

See all articles by Claire Yurong Hong

Claire Yurong Hong

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Xiaomeng Lu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)

Date Written: October 25, 2019

Abstract

The emergence of third-party online platforms in inter-mediating financial products has been a new and exciting development in FinTech. In China, the platforms are allowed to distribute mutual funds since 2012, and have quickly grown into a formidable presence. Examining the economic impact of this new distributional channel, we use the staggered entrance of mutual funds onto the platforms to identify the casual effect of online platforms on the behaviors of fund investors and fund managers. We find that, post-platform, fund flows become markedly more sensitive to fund performance. The net flow to the top 10% performing funds more than triples their pre-platform level, and this pattern of increased performance sensitivity is further confirmed using private data from Howbuy, a top-five platform in China. Consistent with the added incentive of becoming a top ranking performer in the era of large-scale platforms, we find that fund managers increase their risk taking to enhance the probability of getting into the top rank. Meanwhile, the organization structure of large fund families weakens as the introduction of platforms levels the playing field for all funds.

Keywords: Mutual Funds, FinTech, Platforms, Flows, Incentives

JEL Classification: D14, G11, G14, L11, L23

Suggested Citation

Hong, Claire Yurong and Lu, Xiaomeng and Pan, Jun, The Economic Impact of Distributing Financial Products on Third-Party Online Platforms (October 25, 2019). Available at SSRN: https://ssrn.com/abstract=3474792 or http://dx.doi.org/10.2139/ssrn.3474792

Claire Yurong Hong (Contact Author)

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

211 West Huaihai Road
Shanghai, China
Shanghai, Shanghai 200030
China

HOME PAGE: http://https://sites.google.com/site/claireyuronghong/

Xiaomeng Lu

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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