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The role of hedge funds in the asset pricing: evidence from China

Zhang, Jing; Zhang, Wei; Li, Youwei; Feng, Xu

Authors

Jing Zhang

Wei Zhang

Xu Feng



Abstract

We document that hedge funds nurture mispricing in the Chinese financial market. We examine the relationship between hedge fund holdings and the degree of mispricing, assuming that hedge funds’ stock holdings are mainly for arbitrage and not for hedging. We also examine this relationship with and without short-selling restrictions. Hedge funds intentionally hold overvalued stocks. Their trades, which generate an abnormal return of 1.78% per month, also impede the dissipation of stock mispricing. Furthermore, we find that trend-chasing may explain why hedge funds prefer to hold overvalued stocks. This research provides a new perspectives on the information content and potential investment value of hedge fund holdings in emerging markets.

Citation

Zhang, J., Zhang, W., Li, Y., & Feng, X. (in press). The role of hedge funds in the asset pricing: evidence from China. The European journal of finance, 1-25. https://doi.org/10.1080/1351847X.2021.1929373

Journal Article Type Article
Acceptance Date Apr 22, 2021
Online Publication Date May 20, 2021
Deposit Date May 20, 2021
Publicly Available Date Mar 29, 2024
Journal European Journal of Finance
Print ISSN 1351-847X
Electronic ISSN 1466-4364
Publisher Routledge
Peer Reviewed Peer Reviewed
Pages 1-25
DOI https://doi.org/10.1080/1351847X.2021.1929373
Keywords Hedge funds; Stock mispricing; Asset pricing; Arbitrage
Public URL https://hull-repository.worktribe.com/output/3772265

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©2021 The authors. All rights reserved. No part of this publication may be reproduced without the written permission of the copyright holder





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