Leveraging the unprecedented capabilities of Large Language Models (LLMs) to assess sentiment across different topics within the same text, the authors extract the structured beliefs of all mutual fund managers in China based on their reports spanning 2008 to 2023, regarding the economy, government policies, and financial markets. Specifically, the authors construct a measure for countercyclical policy (CCP) beliefs, where managers anticipate that government policies will counteract economic shocks. The authors find that funds exhibiting frequent CCP beliefs (CCP funds) significantly outperform other funds. To explain this superior performance, the authors demonstrate that CCP funds’ market beliefs have stronger predictive power for market returns, their asset allocations show a stronger correlation with their market beliefs, and their performance is directly linked to their time-varying CCP beliefs.
Session Chair:
Zheng (Michael) SONG
Wei Lun Professor of Economics, Chinese University of Hong Kong and Senior Fellow, ABFER
Updated 16 Jan 2025
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