Information and Behavior Creditability of Underwriter and Mutual Funds for Retail Investors: Empirical Evidence in Chinese Stock and Mutual Fund Market

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Conference Proceeding

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This paper discusses whether retail investors are likely to increase the probability of gain from stock investment if retail investors incorporate the investigation process for all recommended stocks from underwriters and behaviors from mutual funds. Besides, this paper explores some stock indicators that help increase the probability of gain on stock investment from prediction. Although underwriters are investment experts, they have incentives to provide false information to the public considering the conflict of interest. Given that underwriters gain the advantage of controlling the amount of revealed information on stocks, retail investors also check the past performance and the shareholding in mutual funds for each corresponding stock. Since mutual funds are operated by sophisticated fund managers, their trading behaviors also reveal some information about true stocks' performances. This paper applies the Random Forest model, confusion matrix, and heat map analysis to test the creditability from the following two aspects: 1) Information from the stock market; 2) Information from mutual funds. We collect and organize all A-share stocks in industry research reports from Guotai Junan Securities Company, individual stock information, the mutual funds shareholding structure, and the overall market trend in the WIND Financial Database from the first quarter in 2017 to the first quarter in 2021. The results indicate that more indicators consideration can increase the probability of gain from 51.35% to 61.18%.

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ACM International Conference Proceeding Series

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