Working Paper: NBER ID: w26576
Authors: Claire Yurong Hong; Xiaomeng Lu; Jun Pan
Abstract: We document a novel platform effect caused by the emergence of FinTech platforms in financial intermediation. In China, platform distributions of mutual funds emerged in 2012 and grew quickly into a formidable presence. Utilizing the staggered entrance of funds onto platforms, we find a marked increase of performance-chasing, driven by the centralized information flow unique to FinTech platforms. This pattern is further confirmed using proprietary data from a top platform. Examining the platform impact on fund managers, we find that, incentivized by the amplified performance-chasing, fund managers increase risk taking to enhance their probability of getting onto the top ranking.
Keywords: Fintech; Mutual Funds; Performance Chasing; Investor Behavior; Risk Taking
JEL Codes: G00; G10; G15; G20; G23; G40; G50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased performance-chasing behavior (C92) | increase in risk-taking behaviors by fund managers (G41) |
| Increased risk-taking behaviors by fund managers (G41) | higher expected returns (G12) |
| Amplified performance chasing (D29) | long-term investor welfare losses (G40) |
| Fintech platforms (G29) | increase in performance-chasing behavior (G41) |
| Fintech platforms (G29) | amplified performance sensitivity (D29) |