Does Innovative Preferences Improve Mutual Funds Performances?

As of the end of 2016,the total size of Chinese mutual funds has reached 9.16 trillion yuan,equivalent to 12.32% of the total GDP of the year,or 22.45% of the total market value of Chinese stock market at the end of 2016.The Chinese mutual fund industry has played an important role in economy.Therefore,the study in influence factor of mutual funds performance has become a important topic in Chinese economic.On the other hands,our economic development model that derive solely on fixed asset investment has faced severe challenges,the slowdown in economic growth indicates that China’s economy has entered the ’the New Normal’,the style of economic growth needs to gradually shift from factor and investment driven to innovation driven.Under this circumstance,changing the mode of economic development and vigorously supporting enterprise innovation has become the leading direction of government economic policy in recent years.Combine Chinese capital market is gradually becoming specialized and our economy is gradually transforming into an innovation-driven development model,study in whether a mutual fund which preference investment in innovation company have batter performances than others is not only enrich the literature on performance of active management funds,but also provide empirical evidence for policy makers to set relevant innovative corporate financing rules.In addition,research on fund performance in this paper can also provide institutional investors with an investment strategy reference in the academic sense.This paper’s data is come from the portfolio data of Chinese stock mutual funds from 2005 to 2015 except for ETF,QDIIs,umbrella funds and graded funds.This paper use the ratio of the number of patent application to total asset to measure firm’s innovation level.Based the fund holdings,the fund’s innovation preference is defined as the value-weighted average innovation level of mutual fund’s portfolio holding.Through the FAMA-FRANCH three factor,panel data regression,DGTW measure we can measure whether funds that tending to invest in innovation firm have better performances than others.At the last,this paper through fund’s cross section difference between industry bias,number of fund manager and portfolio concentration to investigate whether these characteristic influence performance of funds which tending to invest in innovation firm.Through this study,we can concluded:First,in long term mutual funds tending to invest in innovative firms gain higher excess returns than others.Sencond,higher industry bias and portfolio concentration have a postive influences to mutual funds tending to invest in innovative firms.Third,the performance of team manager who tending invest in innovation company is better than individual manger in the same situation.The conclusion,in long term the degree of funds innovation invest perference have positive relation with funds performances,is not only support the argure that active management funds could create value,but also proving evidence for innovative companies can get support through the capital market.