Mutual fund preference for pure-play firms

Bradford D. Jordan, Ang Li, Mark H. Liu

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

We find that actively managed mutual funds have higher ownership in pure-play firms than in conglomerates. The results show that fund managers’ industry expertise explains this preference because investing in pureplays allows the industry expertise to concentrate in one industry and investing in conglomerates dilutes the expertise. The preference is stronger when firms are more affected by industry factors and when fund managers show greater industry expertise. Mutual funds that hold more pure-play firms outperform, show industry and pureplay selectivity, and do not show an effect that scale erodes fund performance. We also discuss how diversification discounts affect our findings.

Original languageEnglish
Article number100719
JournalJournal of Financial Markets
Volume61
DOIs
StatePublished - Nov 2022

Bibliographical note

Publisher Copyright:
© 2022 Elsevier B.V.

Keywords

  • Business segments
  • Diversification discount
  • Industry expertise
  • Mutual funds
  • Pure-play firms

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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