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This 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.

By 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.

The 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.

The findings of this study provide insightful guidance for retail investors in making investment decisions and support the hypothesis that active fund management adds value.

Firstly, 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.

Congress and the Securities and Exchange Commission (SEC) have mandated mutual fund disclosure regimes to help investors make better investment decisions to strike an optimal balance between the investors' interest in more timely and accurate portfolio holdings disclosure and the cost associated with making and disclosing the holdings information available to investors. Many academics and practitioners point out that, despite all the regulations on portfolio disclosure, fund managers can still engage in practices that go against the spirit of the rules without violating the letter of the law. The purpose of this paper is to address the empirical question of whether the practice exists, using holdings data for more than 3,000 equity mutual funds during the time period from 1995 to 2004.

In this paper, the authors examine window dressing by mutual fund portfolio managers, using holdings data covering more than 3,000 equity mutual funds from 1995 to 2004. The authors first investigate whether the fund holdings are materially different from universe holdings across performance quintiles based on holdings in the month of disclosure and in the following month. The second part of the analysis examines funds' patterns of buying and selling. Finally, the measure of “Buying Intensity” and “Selling Intensity” is examined, with a specific focus on the holdings data for the fourth quarter.

An examination of fund holdings finds no statistically significant evidence of systematic window dressing, either at the aggregate level or within subsamples of funds based on size or past performance. Rather, it was found that fund managers tend to chase momentum. A combination of investor sophistication and market oversight may serve to be effective in dissuading fund managers from engaging in the practice.

The authors' data are at the individual fund level, based on equity mutual funds holdings data provided to Morningstar on a quarterly or monthly basis (according to Elton et al., the Morningstar database provides timely and accurate mutual fund holdings information). These data allow us to infer better the investment manager intent vis‐à‐vis using 13F data, which is aggregate data across various fund families and separate accounts, or aggregate pension fund equity holdings data that includes aggregate holdings of multiple portfolio managers. In addition, the authors comment on the significance of the regulatory checks and balances that are designed to restrict fund managers' ability to window‐dress their portfolios. In summary, the combination of quantitative evidence from empirical tests and an examination of the legal framework under which mutual fund portfolio managers operate, lead to the conclusion that window dressing is not prevalent in the industry.

The purpose of this study is to focus on mutual funds’ valuations of their US private firm holdings. According to extant academic literature, mutual funds’ boards of directors should assign prices to their private firm stocks based on their own determination of fair value.

This study investigates fluctuations in valuations of mutual funds holdings of private firms, and whether or not mutual funds managers are able to pick privately held firms that eventually undergo an initial public offer.

The study shows that private firm common stocks’ prices fluctuate much more than preferred stocks’; however, as expected, preferred stock is the most selected security type. This study also investigates these firms’ propensity to undergo an initial public offering (IPO). Results show that mutual funds allocated most of their capital to US private sector firms that underwent an initial public offering. Logit model results reveal that fund managers are able to pick privately held firms that will go public.

Due to data limitations, the authors’ analysis does not control for venture capital ownership; an issue the authors plan to address in the future.

Though, research in this area may exist, the authors have not found academic literature related to holdings of private firms by mutual funds, pricing by funds’ boards of directors or the motives for such investments.

The purpose of this paper is to examine how board compensation and holdings are related to mutual fund expense ratios. Previous studies find that compensation and expense ratios are positively correlated and argue that this relationship is potential evidence of rent sharing, whereby excessively compensated boards fail to negotiate with fund managers for lower shareholder fees.

Using a dataset of US open‐end mutual funds, the author examines how geographic‐based salary data, director profession, director fund holdings and fund returns might explain the relationship between compensation and fees.

The results provide additional support for potential rent sharing between fund managers and directors and are robust to alternative measures of director compensation, fund sales loads, director holdings and fund returns.

The findings are limited by the sample size and the lack of time series data of the hand‐collected dataset. Data are collected from 598 funds in the year 2003.

These findings suggest that mutual fund expense ratios may be affected by potential agency costs.

Mutual fund regulatory focus has been predominantly focused on the independence of board chairmen, but this study shows that compensation may also be a significant contributor to fund governance.

This study is unique in its recent focus on fund expense ratios and board compensation and examining potential explanations for this relationship.

This study is about the determinants of cash holding and impact of cash holding on mutual funds’ performance. In addition, the study analyzes the impact of performance-related determinants of cash holding on funds' performance.

Panel data of ten years of 190 open-end mutual funds are analyzed through fixed effect regression technique. The risk-adjusted funds' performance of cash based portfolios is computed through capital asset pricing model (CAPM) (1964), Fama and French (1993) and Carhart (1997) models.

The results indicate that small size funds, high charging front-end load funds, high turnover ratio funds, high 12-month fund returns run up, high dividend paying funds and high redemption level funds hold more cash for precautionary purpose to avoid costs of cash short-falls. Further, monthly average raw returns and risk-adjusted performance of funds with the lowest raw and residual cash holding are found higher than the funds with the highest cash holding. An increase in cash is found to dilute performance.

This is a pioneer study in a corporate environment with shallow capital market, reliance of businesses on bank credit, firms exposed to agency issues, wealth expropriations and existence of business groups with political linkages but with opportunities of investments due to expected favorable geo-socio-political situation. The study generates outcomes relevant for other similar economies.

The purpose of this paper is to investigate if there is any impact of reporting delays on profitability of front-running strategies against the mutual funds.

The author studies if freshness of mutual fund holding information from public disclosures affects precision of flow-based front-running strategies against the funds and if the allowed 60-day reporting delay is able to protect the funds from these front-running activities against them.

Assuming no reporting delay, the author finds that returns from hypothetical front-running strategies are significant, when these are based on the most recent holding information and are not significant, when based on relatively old holding information. Interestingly, these front-running returns appear to be mostly driven by anticipated forced buys by the mutual funds (rather than anticipated forced sales). The return from a front-running strategy long on anticipated forced buys is higher when it is based on relatively illiquid assets. The author also finds that return from a front-running strategy short on anticipated forced sales is significant, when it is based on illiquid assets from relatively old holding information.

Hence, it appears that the allowed 60-day reporting delay is able to protect most of the funds from front-running activities against them, except for the funds holding illiquid assets from anticipated forced sales motivated front-running activities against them.

The paper addresses an interesting question, which has not been studied before – if freshness of fund holding information helps the front-running strategies against the funds and if the allowed reporting delay is effective in protecting the funds from these activities.

This study examines whether mutual funds buy or sell the stock of merger targets advised by their investment bank affiliates in advance of merger announcements and withdrawals. Existing literature finds mixed evidence on whether financial conglomerates act on conflicts of interest across divisions.

Affiliations between investment banks and mutual funds are identified, and the incidence and characteristics of mergers where funds trade the stock of targets advised by affiliates are examined.

Mutual funds buy or increase holdings of merger targets advised by their investment bank affiliate in advance of merger announcements, capturing highly positive abnormal returns. Mergers with this pre-announcement trading by affiliates are more likely to be completed successfully. Furthermore, mutual funds are more likely to liquidate holdings of a target in advance of a merger withdrawal if the fund is affiliated with the target's investment bank advisor, thus avoiding negative abnormal returns surrounding merger withdrawals. Results are robust after controlling for potential sample selection bias.

These findings contribute to the literature on affiliations between investment banking and mutual fund management, M&A outcomes, and to the discussion of potential conflicts of interest within banks. Also, this study is the first to examine trading activities by mutual funds affiliated with merger investment bank advisors during value-sensitive periods beyond the pre-announcement phase, such as the time period leading up to merger withdrawals.

This chapter investigates voting decisions by mutual funds in a variety of management-sponsored proposals in Israel. Our main findings are that mutual fund managers tend to vote with management and oppose only about 30 percent of all potentially harmful proposals. Larger equity holdings by the fund manager and better prior performance by the firm are found to be negatively associated with the odds of voting against management. Also, mutual funds managed by banks are found to exhibit better monitoring than mutual funds managed by private investment companies. We find that bank fund managers are more likely to vote against management than other mutual fund managers. We further find that non-bank funds tend to increase equity holding following the meeting regardless of their vote, whereas bank funds tend to follow the “Wall Street Rule” and reduce their equity holdings after voting against management.

This study aims to assess the relationship between cash management and fund performance in index fund portfolios.

Using a sample of 104 index mutual funds that track the Standard and Poor 500 stock market index from January 1999 to December 2016, the authors employ quintile portfolios and different regression models to assess the differences in risk-adjusted monthly returns experienced by index funds managing different cash levels in their portfolios. To ensure the robustness of the results, different sub-periods and market states are considered in the analyses as well as other exogenous factors and fund characteristics affecting the level of portfolio cash holdings and index fund performance.

Results show that index funds holding higher levels of cash and cash equivalents performed significantly worse than their low-cash counterparts. This evidence remains even after considering different sub-periods and bullish and bearish market conditions and controlling for fund expenses and other variables that could drive this cash-performance relationship.

This study expands the extant literature analyzing cash management in the mutual fund industry. More specifically, the analyses focus on index fund portfolios that replicate a specific benchmark, given that their performance differences should not be related to the market evolution but to the factors derived from the fund management and other exogenous issues. These findings are of interest to managers and investors willing to improve their risk-adjusted returns while investing as diversified as a stock market index.

El objetivo de este estudio es analizar la relación existente entre la gestión de efectivo y el desempeño consiguiente en las carteras de fondos de inversión indexados.

Utilizando una muestra de 104 fondos que replican el índice bursátil Standard and Poor's 500 desde enero de 1999 hasta diciembre de 2016, se emplean carteras hipotéticas que invierten en fondos similares y diferentes análisis de regresión para analizar las diferencias en las rentabilidades ajustadas mensuales entre fondos indexados que gestionan diferentes niveles de efectivo en sus carteras. Por motivos de robustez, se tienen en cuenta diversos subperiodos y estados de mercado, así como otros factores exógenos y características de los fondos que afectan tanto al nivel de efectivo mantenido en la cartera indexada como al desempeño de la misma.

Los resultados muestran que los fondos indexados que gestionan niveles de efectivo más elevados experimentan un desempeño significativamente menor que otros fondos comparables que mantienen menores porcentajes de efectivo en sus carteras de inversión. Se obtiene una evidencia similar tras considerar diferentes subperiodos y momentos alcistas y bajistas de mercado, así como al considerar los gastos propios de cada fondo y otras variables que podrían afectar esta relación entre el rendimiento y el efectivo gestionado.

Este estudio contribuye a la literatura existente que analiza la gestión de efectivo en la industria de fondos de inversión. Más específicamente, los análisis se centran en carteras de fondos que replican un índice bursátil específico, dado que las diferencias en sus rendimientos en este tipo de fondos no deberían originarse por la evolución del mercado, sino a causa de factores relacionados con la gestión de sus carteras y otros componentes exógenos al índice bursátil. Estos hallazgos son de interés para gestores e inversores que pretendan mejorar sus rentabilidades ajustadas al invertir mediante una estrategia tan diversificada como un índice bursátil.

The timeliness of portfolio holdings information disclosure has been of interest among regulators, academics and practitioners since the Investment Company Act of 1940. The Securities Exchange Commission has been trying to strike a balance between investors' interest in timely disclosure and the potential costs associated with revealing the strategies of investment managers. The purpose of this paper is to investigate whether current rules regarding the delay in disclosure adequately protect investors, and prevent the formation of copycat portfolios that can profit from the research of the original portfolio manager.

The paper examine the effectiveness of different delays (30, 60 or 90 days) in disclosure of holdings for a sample of large‐cap, actively‐managed mutual funds. Copycat portfolios are constructed based on the holdings of the original portfolios, and their returns compared against the returns (net of expenses) of the original portfolios over the corresponding time frames.

The results indicate that the current delay of 60 days is sufficient to prevent such free‐riding; however, shortening the delay to 30 days would adversely affect mutual fund investors.

The paper aims to provide an answer to those debates on the effective delays in portfolio disclosure among academics and practitioners based on quantitative evidence. It also contributes to leave a guideline for regulators since the patterns of over‐ or under‐performance of the original portfolio returns vis‐à‐vis the copycat portfolio returns over varying delays provide important insights about possible effects of changes in disclosure regulations.