|
|
|
| Implicit Leverage Constraints, Liquidity Risk, and Investor Sentiment |
| ZHU Xiaoquan, CHEN Zhuo
|
School of Banking and Finance, University of International Business and Economics;
PBC School of Finance, Tsinghua University |
|
|
|
Abstract The Administrative Measures for the Operation and Management of Publicly Offered Securities Investment Funds, implemented in August 2014, require the leverage of fixed-income funds to be below 140% but give no explicit requirement for the leverage of equity funds. In practice, equity funds barely invest on margin and even set aside a high proportion of cash reserves (Simutin, 2014; Boguth and Simutin, 2018). This self-imposed zero-leverage constraint is implicit and motivates funds to indirectly gain leverage by holding high beta stocks when funding conditions deteriorate. Based on this intuition, this paper uses actively managed equity-oriented open-end funds from 2003 to 2019 to explore the implications of the aggregate mutual fund beta.
We aggregate all actively managed equity funds in China to a hypothetical large fund and calculate the value-weighted average market beta of its aggregate A-share holdings. Following Brunnermeier and Pedersen (2009), we conjecture that a priced liquidity risk factor drives the dynamic of the aggregate mutual fund beta. The time series of the aggregate mutual fund beta contains useful information on the tightness of implicit leverage constraints for Chinese mutual funds and reflects the liquidity condition in the stock market. Furthermore, we investigate whether loadings on changes in the aggregate mutual fund beta predict returns in the cross-section. We find that exposure to the monthly change in the aggregate mutual fund beta unconditionally fails to predict returns at the firm and fund levels. In contrast, such exposure negatively predicts stock and fund returns following periods of low sentiment or low liquidity. The negative price of the change in the tightness of implicit leverage constraints is consistent with the notion that an asset that pays off when implicit leverage constraints are tighter provides capital when the capital is most valuable. As a result, the strong performance of stocks and funds with low exposure to implicit leverage constraints following periods of low sentiment or low liquidity can be rationalized as compensation for liquidity risk. However, short-sale constraints prohibit the positive relationship between leverage tightness exposure and stock returns after periods of high sentiment.
By exploiting the staggered implementation of pilot marginable stocks in China, our study compares the cross-sectional pricing power of changes in implicit leverage constraints among pilot and non-pilot stocks. We find that the distorted risk-return relationship is more pronounced among stocks that are ineligible for margin trading. This confirms our conjecture regarding conditional pricing, namely, that in high-sentiment regimes, short-selling constraints lead to active leverage constraints and thus affect the pricing kernel.Next, recent papers document that funds oriented toward small-and medium-cap stocks exhibit a stronger liquidity preference in deteriorating funding conditions (Li et al., 2015; Zhang et al., 2017). We construct the fund-beta-based implicit leverage constraint using funds investing in small-and medium-sized stocks and document that this aggregate beta measure captures the dynamics of funding liquidity in a more timely manner.
This study extends the literature in two ways. First, we propose a measure for implicit leverage constraints. Different from developed markets, retail investors have long been important market participants in the A-share market. Meanwhile, the recent emergence of high-frequency trading, together with retail investors' noisy trading, may invalidate turnover as an effective proxy for market funding conditions (Baker and Wurgler, 2007). The proposed aggregate risk-taking measure of mutual funds can be used as a market-based forward-looking signal of market illiquidity. Second, we explore the interaction between implicit and explicit leverage constraints. We show that the distorted risk-return relationship between leverage tightness exposure and stock returns is more pronounced among stocks that are ineligible for margin trading, especially after periods of high sentiment. These findings provide direct evidence of the conditional pricing of liquidity risk.
However, semi-annual snapshots of fund holdings fail to capture the daily trading activities of active funds, thus contaminating our liquidity measure. We mitigate this concern by dropping funds with a high probability of window dressing, and our main findings remain unchanged. In addition, it is possible that other forces overlap with our sentiment channel; for example, the timing ability of fund managers and investor inflows/outflows may affect the aggregate fund beta. Furthermore, it is relevant to investigate whether mutual fund herding during high-sentiment periods affects price efficiency. We leave these questions for future research.
|
|
Published: 02 November 2021
|
|
|
|
|
| [1] |
金秀、姜尚伟和苑莹,2018,《基于股吧信息的投资者情绪与极端收益的可预测性研究》,《管理评论》第7期,第16～25页。
|
| [2] |
李志生、陈晨和林秉旋,2015,《卖空机制提高了中国股票市场的定价效率吗？——基于自然实验的证据》,《经济研究》第4期,第165～177页。
|
| [3] |
李仲飞、黄宇元和邓柏峻,2015,《基金存在流动性择时能力吗？——基于中国主动管理开放式股票型基金的实证研究》,《金融经济学研究》第2期,第108～118页。
|
| [4] |
李志冰、杨光艺、冯永昌和景亮,2017,《Fama－French五因子模型在中国股票市场的实证检验》,《金融研究》第6期,第191～206页。
|
| [5] |
刘莎莎、刘玉珍和唐涯,2013,《信息优势、风险调整与基金业绩》,《管理世界》第8期,第67～76页。
|
| [6] |
罗荣华、陈新春和刘阳,2017,《资金流波动、基金流动性配置与基金业绩》,《证券市场导报》第11期,第49～60页。
|
| [7] |
孟庆斌、杨俊华、许伟和吴蕾,2019,《投资者申赎与公募基金业绩粉饰——基于中国基金信息披露差异的经验证据》,《管理评论》第11期,第20～32页。
|
| [8] |
申宇、赵静梅和何欣,2013,《基金未公开的信息:隐形交易与投资业绩》,《管理世界》第8期,第53～66页。
|
| [9] |
肖峻和石劲,2011,《基金业绩与资金流量:我国基金市场存在“赎回异象”吗？》,《经济研究》第1期,第112～125页。
|
| [10] |
易志高和茅宁,2009,《中国股市投资者情绪测量研究: CICSI的构建》, 《金融研究》第11期,第174～184页。
|
| [11] |
张浩、黄宇元和王斌,2017,《基金经理存在动态流动性偏好吗？——基于中国基金市场的证据》,《证券市场导报》第8期,第51～62页。
|
| [12] |
张宗新和缪婧倩,2012,《基金流量与基金投资行为——基于动态面板数据模型的实证研究》,《金融研究》第4期,第110～123页。
|
| [13] |
中国人民银行营业管理部课题组,2017,《预算软约束、融资溢价与杠杆率——供给侧结构性改革的微观机理与经济效应研究》,《经济研究》第10期,第53～66页。
|
| [14] |
Agarwal, V., G. D. Gay, and L. Ling. 2014. “Window Dressing in Mutual Funds”, The Review of Financial Studies, 27(11):3133～3170.
|
| [15] |
Agarwal, V., and H. Zhao. 2019. “Interfund Lending in Mutual Fund Families: Role in Liquidity Management”, The Review of Financial Studies, 32(10):4079～4115.
|
| [16] |
Amihud, Y. 2002. “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects”, Journal of Financial Markets, 5(1):31～56.
|
| [17] |
An, L., D. Lou, and D. Shi. 2019. “Wealth Redistribution in Bubbles and Crashes”, Working paper.
|
| [18] |
Asness, C., A. Frazzini, N. J. Gormsen and L. H. Pedersen. 2020. “Betting Against Correlation: Testing Theories of the Low-Risk Effect”, Journal of Financial Economics, 135(3):629～652.
|
| [19] |
Baker, M. and J. Wurgler. 2006. “Investor Sentiment and the Cross-Section of Stock Returns”, Journal of Finance, 61(4):1645～1680.
|
| [20] |
Baker, M. and J. Wurgler. 2007. “Investor Sentiment in the Stock Market”, Journal of Economic Perspectives, 21(2):129～151.
|
| [21] |
Ben-Rephael, A., S. Kandel, and A. Wohl. 2012. “Measuring Investor Sentiment with Mutual Fund Flows”, Journal of financial Economics, 104(2):363～382.
|
| [22] |
Boguth, O., and M. Simutin. 2018. “Leverage Constraints and Asset Prices: Insights from Mutual Fund Risk Taking”, Journal of Financial Economics, 127(2):325～341.
|
| [23] |
Brunnermeier, M. K., and L.H. Pedersen. 2009. “Market Liquidity and Funding Liquidity”, Review of Financial Studies, 22(6):2201～2238.
|
| [24] |
Cao, C., Y. Chen, B. Liang, and A. W. Lo. 2013. “Can Hedge Funds Time Market Liquidity？”, Journal of Financial Economics, 109(2):493～516.
|
| [25] |
Carhart, M. M. 1997. “On Persistence in Mutual Fund Performance”, The Journal of Finance, 52(1):57～82.
|
| [26] |
Chen, Z., A. Lu, and X. Zhu. 2019. “Investor Sentiment and the Pricing of Macro Risks for Hedge Funds”, Working Paper.
|
| [27] |
Christoffersen, S., and M. Simutin. 2017. “On the Demand for High-Beta Stocks: Evidence from Mutual Funds”, Review of Financial Studies, 30(8):2596～2620.
|
| [28] |
De Long, J. B., A. Shleifer, L. H. Summers, and R. J. Waldmann. 1990. “Noise Trader Risk in Financial Markets”, Journal of Political Economy, 98(4):703～738.
|
| [29] |
Dong, X., S. Feng, and R. Sadka. 2019. “Liquidity Risk and Mutual Fund Performance”, Management Science, 65(3):1020～1041.
|
| [30] |
Fama, E.F., and K.R. French. 1992. “The Cross-Section of Expected Stock Returns”, The Journal of Finance, 47(2):427～465.
|
| [31] |
Fama, E.F., and K.R. French. 2015. “A Five-factor Asset Pricing Model”, Journal of Financial Economics, 116(1):1～22.
|
| [32] |
Frazzini, A., and L.H. Pedersen. 2014. “Betting Against Beta”, Journal of Financial Economics, 111(1): 1～25.
|
| [33] |
Gao, G. P., P. Gao, and Z. Song. 2018. “Do Hedge Funds Exploit Rare Disaster Concerns？”, The Review of Financial Studies, 31(7):2650～2692.
|
| [34] |
Goldstein, I., H. Jiang, and D. T. Ng. 2017. “Investor Flows and Fragility in Corporate Bond Funds”, Journal of Financial Economics, 126(3):592～613.
|
| [35] |
Han, X., and Y. Li. 2017. “Can Investor Sentiment Be a Momentum Time-Series Predictor？ Evidence from China”, Journal of Empirical Finance, 42:212～239.
|
| [36] |
He, Z., and A. Krishnamurthy. 2013. “Intermediary Asset Pricing”, American Economic Review, 103(2): 732～770.
|
| [37] |
Hong, H., and D. A. Sraer. 2016. “Speculative Betas”, The Journal of Finance, 71(5):2095～2144.
|
| [38] |
Huang, J., C. Sialm, and H. Zhang. 2011. “Risk Shifting and Mutual Fund Performance”, Review of Financial Studies, 24(8):2575～2616.
|
| [39] |
Kacperczyk, M., C. Sialm, and L. Zheng. 2008. “Unobserved Actions of Mutual Funds”, The Review of Financial Studies, 21(6):2379～2416.
|
| [40] |
Lewellen, J., and S. Nagel. 2006. “The Conditional CAPM Does Not Explain Asset-Pricing Anomalies”, Journal of Financial Economics, 82(2):289～314.
|
| [41] |
Liu, J., R. F. Stambaugh, and Y. Yuan. 2019. “Size and Value in China”, Journal of Financial Economics, 134(1):48～69.
|
| [42] |
Ma, Y., K. Xiao, and Y. Zeng, 2020. “Mutual Fund Liquidity Transformation and Reverse Flight to Liquidity”, Working Paper.
|
| [43] |
Manconi, A., M. Massa, and A. Yasuda. 2012. “The Role of Institutional Investors in Propagating the Crisis of 2007-2008”, Journal of Financial Economics, 104(3):491～518.
|
| [44] |
Ng, L., and Q. Wang. 2004. “Institutional Trading and the Turn-of-the-Year Effect”, Journal of Financial Economics, 74(2):343～366.
|
| [45] |
Pastor, L., R. F. Stambaugh, and L. A. Taylor. 2017. “Do Funds Make More When They Trade More？”, The Journal of Finance, 72(4):1483～1528.
|
| [46] |
Shen, J., J. Yu, and S. Zhao. 2017. “Investor Sentiment and Economic Forces”, Journal of Monetary Economics, 86:1～21.
|
| [47] |
Simutin, M. 2014. “Cash Holdings and Mutual Fund Performance”, Review of Finance, 18(4):1425～1464.
|
|
|
|
