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Can Investor Sentiment Affect Abnormal Returns of Mutual Funds?

【Authors】
WANG Jue & CHEN Yongshuai
【WorkUnit】
WANG Jue (University of International Business and Economics, 100029)CHEN Yongshuai (China Credit Assets Registry & Exchange Co., LTD., 100045)
【Abstract】

Based on the data of open-end equity funds in China from 2006 to 2016, this paper studies whether investor sentiment can affect abnormal returns of mutual funds. The findings show that investor sentiment has a significant positive impact on abnormal returns of funds. Using the mediation effect model to verify the impact path of investor sentiment on abnormal returns, the authors find that the elevated investor sentiment can facilitate unobserved trading of funds and thus increase abnormal returns. Further research finds that although different fund holding portfolios have different exposures to investor sentiment, the elevated investor sentiment can still increase unobserved trading and then abnormal returns. The findings imply that fund managers are good at identifying investor sentiment, and can actively adjust the fund’s investment portfolio according to the investor sentiment to obtain abnormal returns. From the perspective of financial investors‘ sentiment, this paper provides new evidence for the research on fund investment ability.

JEL:G12, G23

【KeyWords】
Investor Sentiment, Unobserved Trading, Fund Abnormal Returns