Visible Hands: Professional Asset Managers' Expectations and the Stock Market in China

Ammer, John; Rogers, John H.; Wang, Gang; Yu, Yang

doi:10.17016/IFDP.2022.1362

Working Paper

Visible Hands: Professional Asset Managers' Expectations and the Stock Market in China

Abstract: We study how professional fund managers' growth expectations affect the actions they take with respect to equity investment and in turn the effects on prices. Using novel data on China's mutual fund managers' growth expectations, we show that pessimistic managers decrease equity allocations and shift away from more-cyclical stocks. We identify a strong short-run causal effect of growth expectations on stock returns, despite statistically significant delays in price discovery from short-sale constraints. Finally, we find that an earnings-based measure of price informativeness is increasing in fund investment.

Keywords: mutual fund managers; chinese financial markets; economic growth expectations; price informativeness; textual analysis;

JEL Classification: D80; E66; G11; G12; G23;

https://doi.org/10.17016/IFDP.2022.1362