NAV Inflation: Quarter-End Price Manipulation and Impact on Performance

Our study is among the first to examine the net asset value (NAV) inflation practices of fund managers in China, finding that equity funds bolster their portfolios at quarter‐end and especially year‐end. In support of the NAV inflation hypothesis in China, we further document the following: (1) NAV inflation is more profound for the worst‐performing fund managers; and (2) the stocks in which fund managers hold larger stakes exhibit a more marked pattern of price inflation around quarter‐ and year‐ends than do other stocks. We also find that closed‐end funds in China engage in NAV inflation at quarter‐ and year‐ends.