Information Transfer in the Common Shareholder Relationship: Does Shared Ownership Affect Fund Investments?
Shu LIN, Shu TIAN, and Lu ZHENG
This paper studies information transfer in Chinese financial markets. Specifically, the paper focuses on the common shareholder relationship, in which a shareholder of a Chinese fund management company (FMC) also has a large stake in the listed company held by the FMC.
The study finds that mutual funds prefer stocks with common shareholder links. Moreover, the holdings of common shareholder–connected FMCs exhibit stronger predictability in stock returns over a 3- to 24-month investment horizon than those of unconnected FMCs. An investment strategy based on the common shareholder relationship realizes an annualized return of at least 4.22%. Further investigation suggests that this information advantage is not driven by leaks of non-public information around major corporate news announcements. Overall, the common shareholder relationship appears to provide funds with fundamental information regarding the long-run stock performance.
The study is written by Professor Shu Lin (School of Business, Nanjing University), Professor Shu Tian (School of Management, Fudan University) and Professor Lu Zheng (Long Institute and Paul Merage School of Business, University of California at Irvine).