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Stock-Picking by Mutual Funds: Evidence from Trading in Family-Controlled Firms

Author

Listed:
  • Jing Xie

    (Department of Finance and Business Economics, Faculty of Business Administration, University of Macau)

Abstract

I uncover that equity mutual funds with significant investments in publicly traded family firms (pro-FF funds) exhibit superior performance compared to other funds. This effect is more pronounced when family firms are harder to value or less liquid. Pro-FF funds yield higher returns on family firm investments than other funds do on similar holdings. The net purchasing activities made by pro-FF funds have predictive power for future stock returns and earnings announcement surprises of family firms. One plausible explanation for this informational advantage lies in pro-FF funds focusing on family firms in closer geographical proximity. The positive impact of FF investment on fund performance holds for all three subsets of family firms that are managed by founders, descendants, or professional CEOs.

Suggested Citation

  • Jing Xie, 2024. "Stock-Picking by Mutual Funds: Evidence from Trading in Family-Controlled Firms," Working Papers 202411, University of Macau, Faculty of Business Administration.
    • Handle: RePEc:boa:wpaper:202411
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    File URL: https://fba.um.edu.mo/wp-content/uploads/RePEc/doc/202411.pdf
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    More about this item

    Keywords

    Mutual funds; Informed trading; Family firms; Ownership Structure; Insiders;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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