Does institutional ownership predict mutual fund performance? An examination of undiscovered holdings within 13(f) reports

Pan, Xuhui; Wang, Kainan; Zykaj, Blerina Bela

doi:10.1111/eufm.12209

Cited by 6 publications

(2 citation statements)

References 97 publications

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“…First, II measures sentiment at the aggregate level and does not distinguish institutional investor types. Ideally, we would wish to categorize institutional investor types, such as hedge funds, mutual funds, pensions, banks, insurance companies, and independent investment advisors, as sentiments across these groups might differ due to disparate trading strategies and regulatory requirements, potentially leading to differential impacts on the risk–return relation (Asness et al, 2012; Li et al, 2017; Miller et al, 2022; Pan et al, 2018; Wang & Zheng, 2022; Ward et al, 2020). For example, institutions such as banks, insurance companies, and pensions tend to avoid trading risky stocks, signifying that they may contribute less to the aggregate institutional investor sentiment, compared with mutual funds, independent advisors, and hedge funds.…”

Section: Datamentioning

confidence: 99%

Investor sentiment and the risk–return relation: A two‐in‐one approach

Duxbury

Wang

2023

Euro Fin Management

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Traditional finance theory posits a positive risk–return relation, but empirical evidence is inconclusive. Retail investor sentiment has long been viewed as a distorting factor, while more recently institutional investor sentiment is thought to play a role. We examine the separate and joint impacts of retail and institutional investor sentiments on the risk‐return relation. We find, at both market and firm levels, the risk‐return relation is more likely to be distorted by the two investor‐type sentiments jointly, rather than separately. We further find a cross‐sectional pattern, with the risk‐return relation being more sensitive to investor sentiment for stocks with specific characteristics.

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Section: Datamentioning

confidence: 99%

Investor sentiment and the risk–return relation: A two‐in‐one approach

Duxbury

Wang

2023

Euro Fin Management

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“…However, it should be noted that the data only cover the period since 1999; thus, several data are missing compared with our full sample of funds. In addition, Pan et al (2014) determine that institutional funds claimed in fund prospectuses are not ideal measures of institutional ownership; the researchers find that almost 50% of institutional investors' holdings are retail funds. This result suggests that their investment decisions are not based on whether funds are institutional.…”

Section: Table 12 Herementioning

confidence: 99%

Threshold effect of scale and skill in active mutual fund management

Chong

Lee

Sio

2020

The North American Journal of Economics and Finance

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In this paper, we apply threshold estimation techniques to study the size-performance relation in the US mutual fund industry. The existing studies have found diseconomies scale, and we add our contribution to this by considering possible non-linear decreasing returns to scale caused by fund age and manager tenure. We find significant threshold effects of both fund age and manager tenure at approximately three to four years in the size-performance relation. Compared with younger funds, older funds have severe decreasing returns to scale as the industry size increases.

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The informativeness of the top holdings of Chinese equity mutual funds

Yao

Zhang

2022

IJOEM

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PurposeThis study aims to determine whether the stock holdings of equity mutual funds are informative for predicting future stock performance in the Chinese market. It is a puzzle that actively managed mutual funds underperform passive benchmarks, whereas retail investors still delegate investment decisions to the fund managers. The present study sheds light on whether mutual fund managers possess security selection skills in their top ten holdings.Design/methodology/approachBy regression analysis and portfolio sorting, this study focuses on 830 Chinese A-share stocks in the industry research reports from the Guotai Junan Securities Company. It collects mutual fund's top ten holdings data from the Wind Financial Terminal between 2019Q1 and 2021Q1. As robustness checks, the result holds for the fixed-effect model, an additional measure of ranks in the top ten holdings, the predictability test based on the confusion matrix and two stage least square (2SLS) regression.FindingsThe authors find that the top ten holdings by equity mutual funds are informative for predicting stock performance and can provide valuable information for investors to support their decision-making.Practical implicationsThe findings of this study provide insightful guidance for retail investors in making investment decisions and support the hypothesis that active fund management adds value.Originality/valueFirstly, the authors find that the top ten holdings of Chinese mutual funds show significantly positive signals for future stock excess returns, indicating the selection skills of fund managers. Secondly, the above positive relationship exhibits a diminishing marginal effect with more funds holding this stock. Thirdly, the authors find that the predictability horizon of the number of overweighing funds is up to three quarters and then diminishes in the fourth quarter. Finally, investors have a 59% prediction accuracy for the whole stock sample and an 85% precision conditional on the predicted positive subsample to outperform the market. The authors also address the endogeneity and reverse causality issues.

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Does institutional ownership predict mutual fund performance? An examination of undiscovered holdings within 13(f) reports

Cited by 6 publications

References 97 publications

Investor sentiment and the risk–return relation: A two‐in‐one approach

Investor sentiment and the risk–return relation: A two‐in‐one approach

Threshold effect of scale and skill in active mutual fund management

The informativeness of the top holdings of Chinese equity mutual funds

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