This study investigates the investment styles of Chinese funds. The index-based multi-factor model is introduced, allowing the asset allocation to bond assets. The evidence shows herding behaviour among funds. It is found that Chinese funds strongly prefer large-cap stocks and slightly prefer growth stocks. This is explained by the low liquidity risk and earning stability associated with this kind of investment strategy. Further study discovers that fund managers who invest in growth stocks as a group show superior stock selection ability than those managers who invest in value stocks.
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Zhangpeng et al. (2005) studied this question.
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