The Role of ESG Ratings in Shaping Chinese Investors’ Decision-Making Behavior: An Analysis from the Fund Signaling Perspective

In order to promote the healthy development of China’s fund market and alleviate the phenomenon of “funds make money, investors don’t”, this paper explores the impact and economic consequences of fund signals on investors’ decisions in China. An analysis of quarterly Chinese fund data from January 2010 to December 2022 finds that Chinese investors tend to rely on strong signals and flow their money to highly rated or high-yielding funds. Sustainability is an integral part of ESG ratings, which have gradually become a focal point in the international investment market, but the lack of a platform to display ESG ratings in China has prevented investors from effectively utilizing these ratings in their investment decisions. The study also found that individual investors prefer short- and medium-term returns, while both institutional and individual investors chase ratings, with individual investors relying more on these signals. In addition, strong signals are not effective in predicting fund performance returns, while ESG ratings show significant positive predictive effects, validating the irrational preference of Chinese investors to blindly follow strong signals.