Organizational Diseconomies in the Mutual Fund Industry
AbstractI document how the organizational form of a mutual fund affects its investment strategies. I show that centralized funds tilt their portfolios to hard information companies whereas decentralized funds tilt their portfolios to soft information companies. I also show that the investments of decentralized (centralized) mutual funds in soft (hard) information companies outperform those of centralized (decentralized) funds. Moreover, decentralized funds show ability to forecast soft information companies' future returns and a disability at forecasting hard information companies' future returns. On the other hand, centralized funds do not seem to be able to forecast the returns of hard information companies, but they show disability at forecasting hard information companies' future returns. The results corroborate the main predictions of Stein (2002). The results also shed light on the increase in demand for large stocks and the positive relationship between performance of portfolio concentration documented in the literature.
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp638.
Date of creation: Aug 2009
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-23 (All new papers)
- NEP-FMK-2010-01-23 (Financial Markets)
- NEP-FOR-2010-01-23 (Forecasting)
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