Portfolio Pumping and Fund Performance Ranking: A Performance-Based Compensation Contract Perspective

Journal of Banking and Finance, 105: 94-106.

47 Pages Posted: 6 May 2020

See all articles by Xiangwen Li

Xiangwen Li

affiliation not provided to SSRN

Wenfeng Wu

Shanghai Jiao Tong University - Antai College of Economics & Management

Date Written: April 11, 2020

Abstract

We collect compensation policy data from 60 Chinese mutual fund companies, which covers 88% of assets under management by all active stock and stock-oriented hybrid mutual funds in China. Using the collected data, we investigate the portfolio pumping from a performance-based perspective. We find that portfolio pumping is stronger for funds ranking around critical points of performance distribution (i.e. top one-tenth, one-fourth, one third and one half cutoffs). Moreover, this finding is mainly driven by funds from companies setting these critical points to grade managers’ bonus levels. Our findings provide evidence of portfolio pumping motivated by performance ranking, instead of flow-performance relationship that prior studies documented.

Keywords: Portfolio Pumping; Performance Ranking; Mutual Fund; Winner Funds; Compensation; China

JEL Classification: G11; G12; G19; G23; J33

Suggested Citation

Li, Xiangwen and Wu, Wenfeng, Portfolio Pumping and Fund Performance Ranking: A Performance-Based Compensation Contract Perspective (April 11, 2020). Journal of Banking and Finance, 105: 94-106., Available at SSRN: https://ssrn.com/abstract=3573463 or http://dx.doi.org/10.2139/ssrn.3573463

Xiangwen Li

affiliation not provided to SSRN

Wenfeng Wu (Contact Author)

Shanghai Jiao Tong University - Antai College of Economics & Management ( email )

No. 535 Fahuazhen Road
Shanghai, Shanghai 200052
China

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