Analysis of European Equity Funds Preferences for Stock Characteristics
We analyze the equity portfolio composition of investment funds of 15 European countries. We find that these institutions tend to prefer larger, more liquid, high dividend, low volatility stocks that belong to the main stock market indices. These results are consistent with previous studies that analyze institutional preferences for stock characteristics. These results are also consistent with theories of “prudent” behavior by institutions and are robust to factors such as funds holding a small number of stocks and funds with unusually large holdings relative to the number of outstanding shares of a single company. When we compare institutional preferences across sub-groups of funds, we find no relevant differences between the stock preferences of funds from Portugal, Ireland, Italy, Greece and Spain and those of funds from other countries; also, there seem to be no significant differences between funds with different investment styles and preferences before and during the recent financial crisis in Europe. We also find similar preferences for funds located in countries that adopted the Euro and funds from other countries. Additionally, we find that funds with long-term strategies are more conforming with “prudent” behavior than funds more focused on the short-term.
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