Fund Network,Crowded Trades And Fund Performance

The rapid development of securities investment fund industry in our country,on the one hand,has provided important tools for medium and small investors in China to manage their wealth,promoted the development of our country’s wealth management industry,and contributed to the construction of a common prosperity society.On the other hand,the expansion of the scale and the increase in the number also lead to intensified competition among securities investment funds.In the fierce market competition environment,in order to pursue short-term performance ranking and expand fund size,many fund managers are keen on “track investment” and pursue market hot spots,and even some managers have style drift in pursuit of “track” and hot investment.The above phenomenon can be summed up as the homogenization of investment strategies of securities funds.From a practical point of view,the above-mentioned homogenization of fund investment strategies has attracted great attention from the regulatory authorities.In April2022,the “Opinions on Accelerating the Promotion of the High-quality Development of the Public Fund Industry” issued by the China Securities Regulatory Commission clearly stated that risk can be measured and On the premise of effective protection of investors and control,increase product and business innovation,effectively improve the ability of public funds to serve the real economy,and resolutely abandon the “pseudo-innovation”that is hot spots,gimmicks,and profit-making.Exploring the theoretical mechanism and economic consequences of the formation of the above phenomena can provide a theoretical basis for improving the regulatory policy formulation of fund investment behavior.Therefore,the research in this paper has important practical significance.From a theoretical point of view,the above-mentioned problem of homogeneity of fund investment strategies raises the following two issues worthy of further study: First,many funds holding the same stock may lead to crowded trades.Crowded trades can lead to a “stomping”,which in turn affects fund returns and increases financial market risk.How are the economic consequences of the aforementioned crowded trades worth further study? Second,is there a link between the heavy holding of the same stock by many funds forming a network of fund holdings and crowded trades and its economic consequences?Based on the detailed data of fund positions published every six months,this paper takes 1063 open-end funds in China’s financial market from 2005 to 2021 as a study sample,and mainly explores the following two issues: First,the economic consequences of crowded trades of fund institutional investors,which specifically studies the relationship between fund crowded trades and the current performance as well as future performance of funds;the second is the drive of information network,which specifically studies how crowded trades are triggered in the process of investment decision-making by funds using the network where they are located.The theoretical and empirical research results of this paper show that: First,there is an obvious premium effect of crowded trades in our country’s open-end fund market,and the crowded trades premium effect is asymmetric.Specifically,crowded trades at the fund level are positively correlated with the fund’s current performance and negatively correlated with future short-term performance.buyer-initiated crowded trades have better performance.Second,crowded trades in a bull market can be rewarded more than a downturn.third,In the adjustment of both the external environment of the fund and the fund’s internal managers,the investor sentiment and marketization index can promote crowding,whether the fund management team,government intervention and efficiency index and legal environment index suppress crowded trades.Fourth,from the perspective of information network,crowded trades are a behavioral performance of fund managers using their position in the holding network to make investment decisions.Using the information advantage obtained from the key position of the shareholding network,or using the influence of the important position in the shareholding network,triggers crowded trades.In addition,the Fund do not cause crowded trades due to “free-riding”.The above empirical conclusions are still significantly established after a series of robustness tests such as endogeneity tests,variable substitution,and dynamic panel models.The innovation of this paper may be in the following aspects:First,this paper expands the research framework of crowded trades of fund institutional investors.First of all,in terms of research perspective,different from the existing domestic research that focuses on individual stocks,the research object is fund institutional investors,providing evidence of the existence of crowded transactions in China’s fund market.Secondly,in terms of measurement method,the paper does not use the indicators of Bruno et al.(2015)that based on the similarity or overlap of fund holdings,but uses the imbalance of fund holdings and buying and selling as a proxy variable for fund crowded transactions,which can detect higher Frequency of crowded transactions.Second,the research of the paper enriches the literature on fund information network and information advantage.First and foremost,in terms of research perspective,the existing research discusses the formation mechanism of crowded transactions from the static level.This paper dynamically analyzes the formation of crowded transactions in funds from the perspective of information network.Besides,in terms of research content,information has a premium effect.Funds can improve performance by using their own information advantages,but the mechanism of information premium needs to be improved.From the perspective of information network,this paper explores the mechanism of information premium by using crowded transaction as an intermediary.Furthermore,the premise of constructing a fund’s heavy-holding network is that there is transmission and interaction of private information in the network,and shows the correlation of investment behavior within the network,but this premise does not specify the mechanism by which information interaction leads to behavior convergence.In this paper,when exploring the relationship between fund network location and crowded transaction behavior,crowded transaction as a proxy of homogeneity,by discussing how information is transmitted in the network and how to trigger the investment behavior of different funds,this hypothesis is described in detail.