Who are the momentum chasers? New evidence from mutual funds in China

ABSTRACT

Regarding the effect of past returns on the trading behaviour of individual investors, earlier studies focused on stocks, and we employ unique account-level data from 2005 to 2011 to analyse this effect in mutual funds. After considering both market, fund and personal characteristics, we find that mutual funds investors are momentum chasers. Furthermore, we find that the group of largest size individuals tends to behave like institutions, and do not chase near-term price performance. Finally, we discuss this behavioural difference between the fund and stock investors from the perspective of bounded rationality. Those results show that most individual investors in China’s fund market are not rational and prefer to chase funds with rising prices.

KEYWORDS:

• Individual investors
• momentum chasers
• contrarians
• mutual funds

JEL CLASSIFICATION:

• G11
• G10

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The most popular dataset is the one used by (Barber and Odean 2011), which contains the trading records of 78,000 individual investors from 1991 to 1996. This old data set is still used by many researchers today (Ben-David, Birru, and Rossi 2019; Branikas, Hong, and Xu 2020; Huang, Hwang, and Lou 2021).

² In 2007, the number of effective fund accounts in Mainland China was 85,381,600 (Report by the Securities Industry Association of China), and the number of accounts in the sample was 293,200.

Additional information

Funding

The work was supported by the National Natural Science Foundation of China [72073015]