Abstract
I provide empirical evidence of ambiguity averse investors’ behaviour in Chinas mutual funds market. My analysis is motivated by the substantial uncertainty in China’s mutual funds market, and theoretical research of decision indicates that investors would be more ambiguity averse when face higher uncertainty. The most substantial implication of the empirical research is that investors tend to place more weight on the worst signal. Across multiple horizons, fund flows will also display more sensitivity to the worst performance. I also conduct robustness test about the different rank funds by Morningstar rating and compare the positive and negative performance during the minimum performance period.
Highlights
Unlike the financially developed markets in the world, China’s financial market is still developing and immature, and the investors in China still choose to take time and fortune to invest by themselves without protest
This paper provides empirical evidence of ambiguity averse investors’ behaviour in China’s mutual funds market
The most important finding is that in China’s mutual funds market, corresponding to the previous research about making decisions under ambiguity aversion (e.g., Epstein and Schneider, 2008, Antoniou, Harris and Zhang, 2015), the investors who face with signals of great uncertain quality, they will place great weight on the worst signal
Summary
Unlike the financially developed markets in the world, China’s financial market is still developing and immature, and the investors in China still choose to take time and fortune to invest by themselves without protest. To study how the ambiguity averse investors response to different and various signals about the performance information is essentially important and high relative to the investment strategy in daily life, especially in China’s financial market. Del Guercio and Tkac (2008) indicates that star funds can attract investment in the market and rating of funds matters considering the low fund search costs My paper supplements this literature with the study indicating that investors’ behaviour sensitivity can influence the fund flows. Huang, Wei and Yan (2012) showed fund investors’ sensitivity to past performance is decreasing with the increasing return volatility Their focus is on the US mutual funds market, and it is much different from China’s financial market due to the more complicated and complex characters of China’s financial market.
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