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The competition effect of new entry on mutual fund incumbents in China

Author

Listed:
  • Xunan Feng
  • Jin Xu
  • Ying Wang
  • Chunyan Tang

Abstract

Purpose - Using the sample between 2005 and 2011, the purpose of this paper is to investigate the effect of a new fund entry on incumbents using the overlap measure in portfolio holdings. Design/methodology/approach - Empirical methodology is used in this study. Findings - The authors find that incumbents that have a higher overlap with the entrants underperform subsequently. Based on the characteristic-based approach ofDanielet al.(1997), the authors find that the characteristic selectivity component is negatively correlated with the overlap measure, and thereby the decline in performance is driven by the stock-picking ability. The authors also discuss the unobserved actions of incumbents using the approach proposed byKacperczyket al.(2008)and find that incumbent unobserved actions do not benefit mutual fund investors in China. Finally the authors find that investors respond to the supply-side competition between entrants and incumbents quickly. These findings help us understand the mutual fund completion in China. Originality/value - The findings in this study can help scholars, industry experts and regulatory authorities to understand the effect of competition in Chinese mutual fund industry.

Suggested Citation

  • Xunan Feng & Jin Xu & Ying Wang & Chunyan Tang, 2017. "The competition effect of new entry on mutual fund incumbents in China," China Finance Review International, Emerald Group Publishing Limited, vol. 7(1), pages 98-113, February.
    • Handle: RePEc:eme:cfripp:cfri-04-2016-0020
    DOI: 10.1108/CFRI-04-2016-0020
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    Citations

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    Cited by:

    1. Li, Xiangwen & Wu, Wenfeng, 2019. "Portfolio pumping and fund performance ranking: A performance-based compensation contract perspective," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 94-106.
    2. Zhang, Wei & Li, Yi, 2021. "Do visiting monks give better sermons? An analysis of the foreign experience of Chinese fund managers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    3. Fan, Yaoyao & Song, Qinhao & Guan, Rong & Ly, Kim Cuong & Jiang, Yuxiang, 2024. "Mutual fund herding and performance: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 95(PC).
    4. Ali, Ashiq & Chen, Xuanjuan & Yao, Tong & Yu, Tong, 2020. "Can mutual funds profit from post earnings announcement drift? The role of competition," Journal of Banking & Finance, Elsevier, vol. 114(C).
    5. Chaikal Nuryakin & Regi Kusumaatmadja & Natanael Waraney Gerald Massie & Alvin Ulido Lumbanraja & Sean Hambali & Devina Anindita, 2019. "The Sky in Blues: On the Recent Development of Indonesian Airlines Industry," LPEM FEBUI Working Papers 201941, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2019.

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