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
Date Written: April 11, 2020
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: Suggested Citation