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Mutual funds and stock fundamentals

Author

Listed:
  • Qiyuan Peng

    (University of Dayton)

  • Sheri Tice

    (Tulane University)

  • Ling Zhou

    (University of New Mexico)

Abstract

This paper studies abnormal returns to mutual funds from using a firm fundamental trading strategy. We find that the abnormal returns and the Sharpe Ratio are higher for actively managed mutual funds holding fundamentally strong stocks. These results are driven by the lower risk of stocks with strong fundamentals rather than higher returns. Compared to benchmark index funds, actively managed mutual funds do not slant their portfolios towards fundamentally strong stocks. The lack of trading on firm fundamentals appears to be related to manager incentives as fund inflows are uncorrelated with changes in the fundamentals of their holding stocks.

Suggested Citation

  • Qiyuan Peng & Sheri Tice & Ling Zhou, 2023. "Mutual funds and stock fundamentals," Review of Quantitative Finance and Accounting, Springer, vol. 60(4), pages 1329-1361, May.
    • Handle: RePEc:kap:rqfnac:v:60:y:2023:i:4:d:10.1007_s11156-023-01131-w
    DOI: 10.1007/s11156-023-01131-w
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial statement analysis; Firm fundamentals; Stock market anomalies; Mutual funds; Mutual fund manager incentives;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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