Purchase and Withdrawal of Mutual Fund and Window Dressing: Empirical Evidence from Mutual Fund Information Disclosure in China

Abstract

Abstract:

Under the unique regulation background, this paper studies the window dressing of Chinese mutual funds using the stock holding information from 2003 to 2014 and finds the following results. First, stock holdings of mutual fund have a significant impact on investors' decisions. When a fund holds more "winner" stocks, investors tend to increase their purchase or reduce their withdrawal. When it holds more "loser" stocks, investors are more inclined to reduce the purchase or increase the withdrawal. Second, the degree of window dressing is negatively related to fund performance. Furthermore, as mutual funds have to disclosure more detailed information of stock holding in the second and fourth quarter than in the first and third quarter, the degree of window dressing is significantly higher in the second and fourth quarter. Finally, we find that window dressing has a significantly negative impact on future performance because of higher trade costs resulting from window dressing.

Key words: mutual fund, fund holdings, information disclosure, window dressing

Meng Qingbin, Yang Junhua, Xu Wei, Wu Lei. Purchase and Withdrawal of Mutual Fund and Window Dressing: Empirical Evidence from Mutual Fund Information Disclosure in China[J]. , 2019, 31(11): 20-32.

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