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Using the monthly mutual fund transaction data of individual investors on a large Chinese Fintech platform, the paper studies how does active change in risk-taking affect investment efficiency. In this paper, active change is found to have a positive and significant effect on investment efficiency, which is measured by expected Sharpe ratio. The empirical evidence supports the “smart money” effect in fund market. One possible channel is that individual investors obtain higher investment efficiency by chasing fund market trends. And it’s interesting to find that the effect of active change on investment efficiency is heterogeneous. The increasing financial cognition of investors weakens the effect of active change, while the risk aversion strengthens it. Moreover, long-term investor education plays an important role in guiding investment behaviors.

How Does Active Change Affect Investment Efficiency? Evidence from Monthly Account-level Data on Chinese Online Platform