Selective Pump-and-Dump: The Manipulation of Their Top Holdings by Chinese Mutual Funds Around Quarter Ends

Abstract

We examine the abnormal returns and excess trading volume around quarter ends of the quarterly disclosed top holdings by Chinese mutual funds from 2009 to 2016. We find evidence that a portion of these stocks experience return reversals and high level of excess trading around quarter ends, which is consistent with the view that the Chinese mutual fund managers pump-and-dump some of their top holdings in order to boost their quarterly or annual performances. The top holding stocks that are owned by more funds within a fund family and smaller are more likely to become the manipulation targets and experience larger return reversals around quarter ends. We also find that the fund managers select their manipulation targets differently between yearends and non-yearend quarter ends and some features of their manipulation remain prominent under tightened regulations after the 2015 Chinese stock market crash.