Do platform recommendations in the fund market work? Evidence from a quasi-experimental study

Abstract

Purpose

This study introduces a new type of platform recommendation about mutual funds and draws on the signaling theory to conduct a quasi-experimental design to investigate how the platform recommendation influences investors’ investment decisions. Moreover, the authors examine the combined effect of star ratings and the platform recommendation on fund flow and test the investment value of recommended funds.

Design/methodology/approach

This study implements a quasi-experimental design based on 1,295 mutual funds traded on Alipay’s online platform to test the hypotheses.

Findings

The empirical results show that the recommended funds received higher fund flows from investors when the platform recommendation was established. Moreover, a substitution effect between tag recommendation and star ratings on fund flow was identified. We also uncovered that investing in platform-recommended funds can yield significant and higher fund returns for investors than those without platform recommendations.

Originality/value

Our findings shed new insights into the role of platform recommendations in helping fund investors make investment decisions and contribute to the business of online mutual fund transactions by investigating the effect of platform recommendations on fund flow and performance.

Citation

Hao, S., Peng, L., Tang, X. and Huang, L. (2024), "Do platform recommendations in the fund market work? Evidence from a quasi-experimental study", Industrial Management & Data Systems, Vol. 124 No. 12, pp. 3274-3297. https://doi.org/10.1108/IMDS-09-2023-0615