Incubation and copying equity funds in China

Abstract

This study provides evidence on incubation practices in Chinese equity funds and examines the profitability of copying funds. The empirical findings are as follows. First, the incubation practice is evident among Chinese equity funds. Second, our findings exclude the profitability of copycat funds. An advisory company's fund incubation makes it harder to free-ride on new funds than to free-ride on old funds. Third, the logit analysis shows that copying could be successful for those funds with low performance or low turnover ratios. Finally, incubation is generally undertaken for new funds in a bullish market.