The Role of Hedge Funds in Asset Pricing: Evidence from China

We document that hedge funds nurture mispricing in the Chinese financial market. exploit relationship between fund holdings and degree of case stocks are mainly for arbitrage purpose but not hedging, with without short-selling restrictions. Hedge intentionally hold overvalued stocks. Their trades, which generate an abnormal return to 1.78% per month, also impede dissipation stock mispricing. Further, we find trend chasing may be reason why prefer This research sheds new lights on information content potential investment value emerging markets.