Working Paper: NBER ID: w10770
Authors: Marcin Kacperczyk; Clemens Sialm; Lu Zheng
Abstract: Mutual fund managers may decide to deviate from a well-diversified portfolio and concentrate their holdings in industries where they have informational advantages. In this paper, we study the relation between the industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 1999. Our results indicate that, on average, more concentrated funds perform better after controlling for risk and style differences using various performance measures. This finding suggests that investment ability is more evident among managers who hold portfolios concentrated in a few industries.
Keywords: mutual funds; industry concentration; performance; investment strategies
JEL Codes: G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment abilities (G11) | Performance (D29) |
| Industry concentration (L69) | Mutual fund performance (G23) |
| Industry concentration (L69) | Stock selection ability (G11) |
| Higher industry concentration (L69) | Better stock selection outcomes (G11) |