Mutual funds' selective participation and subsequent performance of seasoned equity offerings

摘要

We study the stock-picking ability of the mutual fund industry in China based on its selective participation in the SEO market. Mutual funds, as an industry, have selection ability if SEO firms with more subscriptions by mutual funds have better future performance than those with fewer subscriptions. To isolate the effect of mutual funds' favorable opinions about the future performance of an SEO firm, we use a statistical model to exclude the impact of a set of extensive factors on the decision to subscribe to an SEO. We use the model residuals as the ex ante favorable expectations about SEO firms by the mutual fund industry. Our findings suggest that those SEO firms being favored by the mutual fund industry perform statistically and economically significantly better than those SEO firms not favored by the industry. Investors can draw valuable inferences from mutual funds' aggregate decision to participate in the SEO offer market.