Fund investor cliques and flow sensitivity—evidence from China

•The tendency of fund investor to clique is more pronounced when fund flows are more sensitive to fund performance.•Fund investor cliques to avoid the capital constraints and redemption risks associated with concentrated selling by fund investors.•Market retail fund investors tend to prefer institutional investors with smaller reliance on public information. Although fund investor cliques have received widespread attention, their motives have not been thoroughly explored. We use a sample of actively managed open-end public equity funds in China during 2006 - 2020 to construct fund investor cliques. We then empirically examine the effect of fund flow characteristics on fund investor cliques. The empirical results show that the tendency of fund investor to clique is more pronounced when fund flows are more sensitive to fund performance. We also construct Reliance on Public Information (RPI) indicator as an instrumental variable to address the endogeneity problem in the empirical process.