Mutual fund preference for pure-play firms

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

doi:10.1016/j.finmar.2022.100719

Mutual fund preference for pure-play firms

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

Finance and Quantitative Methods

Producción científica: Article › revisión exhaustiva

5 Citas (Scopus)

Resumen

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.

Idioma original	English
Número de artículo	100719
Publicación	Journal of Financial Markets
Volumen	61
DOI	https://doi.org/10.1016/j.finmar.2022.100719
Estado	Published - nov 2022

Nota bibliográfica

Publisher Copyright:
© 2022 Elsevier B.V.

Financiación

☆ We thank Chris Clifford, George Comer, Bing Han, Russell Jame, Pedro Matos, Kasper Nielsen, Andre de Souza, Aadhaar Verma, and participants at the 2018 MFA meeting in San Antonio, the 2018 EFA meeting in Philadelphia, the 2018 FMA Asia/Pacific doctoral consortium in Hong Kong, the 2018 FMA doctoral consortium in San Diego, and seminar participants at the University of Kentucky for their helpful suggestions and comments. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. Declarations of interest: none. All errors and omissions are our own.

ASJC Scopus subject areas

Finance
Economics and Econometrics

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title = "Mutual fund preference for pure-play firms",

abstract = "We find that actively managed mutual funds have higher ownership in pure-play firms than in conglomerates. The results show that fund managers{\textquoteright} 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.",

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AU - Liu, Mark H.

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N2 - 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.

AB - 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.

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KW - Pure-play firms

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ER -

Mutual fund preference for pure-play firms

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