This paper studies how mutual fund managers update their beliefs as macroeconomic conditions change. Using regulator-mandated reports from Chinese mutual funds, we measure the intensity of belief updating from year-over-year changes in stated outlooks and decompose those updates into macro and micro themes. We show that belief updating is state-contingent: funds with more intensive belief updating shift their narratives toward macro (micro) topics during recessions (expansions) and concurrently reduce (increase) procyclical stock exposures and on-site company visits. This state-contingent belief updating predicts superior performance when matched to prevailing economic conditions, with macro-oriented updates paying off mainly for high-updating funds in recessions and micro-oriented updates paying off more broadly in expansions. Investors recognize this signal of skill, allocating greater flows to these funds, especially when past returns are less informative. Finally, belief updating is stronger for younger managers and for funds from newer, smaller families, consistent with signaling under career and competitive pressures.

This paper investigates how foreign institutional investors, specifically Qualified Foreign Institutional Investors (QFIIs), influence the investment strategies of Chinese mutual fund management companies (FMCs) in which they hold shares. By analysing panel data from 1,766 mutual funds managed by 44 foreign-invested FMCs in China between 2005 and 2021, we explore whether QFII-invested FMCs (Q-FMCs) learn more from their domestic counterparts (D-FMCs) than other foreign-invested FMCs (NQ-FMCs). Our findings show that Q-FMC-managed mutual funds exhibit portfolio allocations more closely aligned with local DFMCs than those managed by NQ-FMCs. This imitation is particularly pronounced when selecting new stocks, enhancing portfolio performance, but not when rebalancing existing positions. Additionally, Q-FMCs trade more actively than NQ-FMCs. Robustness checks confirm these results across various ownership structures, fund characteristics, market conditions, and regulatory changes. These findings highlight the dual role of QFIIs as both investors and learners in China’s evolving financial landscape, offering insights into how foreign capital integrates into emerging mutual fund markets, informing regulatory policy aimed at fostering cross-border financial development.

We propose a novel dual-screening classification framework for fund selection designed to align statistical objectives with investor goals. Testing on the Chinese mutual funds market, a Gradient Boosting model implementing our framework generates a statistically and economically significant 14.65% annual risk-adjusted alpha, substantially outperforming identical models trained under a standard regression framework. Feature importance analysis confirms that fund-level momentum and flows are the most significant predictors of performance in this market. Our findings provide a robust and practical framework for active management, demonstrating that modelling both upside potential and downside risk is critical for superior performance.

We examine how Chinese mutual funds react to superstitious beliefs about bad luck during one’s zodiac year, which occurs on a 12-year cycle around a person’s birth year. Funds decrease their holdings of zodiac stocks, non-state-owned enterprises in the zodiac years of their chairperson, and profit more from trading zodiac stocks than from trading other stocks. This pattern is more pronounced in firms with lower investor awareness and higher liquidity, and for fund managers with higher past ability, indicating that fund managers trade in anticipation of the negative market reaction towards zodiac stocks.

This paper investigates how the geographical distribution of shareholders in Chinese mutual fund management companies influences investment decisions. We show that mutual funds are more inclined to hold and overweight stocks from regions where their shareholders are located, thus capitalizing on a local information advantage. By examining changes in fund holdings in response to shifts in the shareholder base, we rule out the possibility that these effects are driven by fund managers’ local biases. Our findings reveal that stocks from the same region as the fund’s shareholders tend to outperform and significantly contribute to the fund’s overall performance.

The role of institutional investors in the development of Environmental, Social, and Governance (ESG) criteria lacks consensus in the academic community. This study utilizes a quasi-natural experiment involving Chinese mutual funds that have signed the United Nations Principles for Responsible Investment (UNPRI) to investigate whether institutional Investors’ ESG investment commitments can significantly reduce ESG rating disagreement among the companies in their portfolios. We first find that companies held by ESG commitment institutional Investors exhibit less disagreement in ESG rating compared to those held by Non-ESG commitment institutional Investors. we then show that institutional Investor’ ESG investment commitment influence ESG rating disagreement by enhancing the quality of ESG disclosure and attracting external ESG attention. We further discover that institutional investors’ ESG investment commitments significantly mitigates the ESG rating disagreement among domestic ESG rating agencies and firms with a higher level of corporate governance.

This paper investigates how the geographical distribution of shareholders in Chinese mutual fund management companies influences investment decisions. We show that mutual funds are more inclined to hold and overweight stocks from regions where their shareholders are located, thus capitalizing on a local information advantage. By examining changes in fund holdings in response to shifts in the shareholder base, we rule out the possibility that these effects are driven by fund managers’ local biases. Our findings reveal that stocks from the same region as the fund’s shareholders tend to outperform and significantly contribute to the fund’s overall performance.

The benchmark discrepancy phenomenon arises when fund managers deviate from their stated benchmarks. We investigate benchmark discrepancy in China's mutual fund market by analyzing holdings data from all actively managed funds and document its widespread prevalence. However, in China – unlike in the U.S. – benchmark discrepancy reduces relative performance and capital inflows. We also examine the characteristics of fund managers exhibiting benchmark discrepancies and find they are more likely to be male, highly educated, and professionally experienced.

We examine how mutual funds form stock market expectations and the implications of these beliefs for asset returns, using a novel text-based measure extracted from Chinese fund reports. Funds extrapolate from recent stock market and fund returns when forming expectations, with more recent returns receiving greater weight. This recency tendency is weaker among more experienced managers. At the aggregate level, consensus expectations positively predict short-term future market returns, both in and out of sample. At the fund level, expectations are positively related to subsequent fund performance in the time series. In the cross-section, however, superior performance arises only when funds accurately forecast market direction and adjust their portfolios accordingly. This effect is stronger for optimistic forecasts and among funds with greater exposure to liquid stocks. Our findings highlight the conditional nature of belief-driven performance, shaped jointly by forecasting skill and the ability to implement views in the presence of execution frictions such as short-selling and liquidity constraints.

This study explores how Chinese mutual fund managers’ degrees of disagreement (DOD) on stock market returns affect investor capital allocation decisions using a novel text-based measure of expectations in fund disclosures. In the time series, the DOD neg-atively predicts market returns. Cross-sectional results show that investors correctly perceive the DOD as an overpricing signal and discount fund performance accordingly. Flow-performance sensitivity (FPS) is diminished during high dispersion periods. The ef-fect is stronger for outperforming funds and funds with substantial investments in bubble and high-beta stocks, but weaker for skilled funds. We also discuss ffnancial sophisti-cation of investors and provide evidence that our results are not contingent upon such sophistication.