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Active Technological Similarity and Mutual Fund Performance
Published online by Cambridge University Press: 02 November 2021
Abstract
We examine whether superior understanding of technological innovation is a source of mutual fund managers’ ability to garner positive abnormal returns. Consistent with our hypothesis, the inter-quintile annual net Carhart alpha spread for mutual funds sorted on changes in the technological similarity (TS) of their portfolio holdings is 282 basis points. Moreover, because changes in TS are largely orthogonal to other predictors of mutual fund success (e.g., industry concentration, active share, fund R2, and lag fund alpha), changes in TS can be combined with other measures to help identify the best performing funds.
- Type
- Research Article
- Information
- Journal of Financial and Quantitative Analysis , Volume 57 , Issue 5 , August 2022 , pp. 1862 - 1884
- Copyright
- © The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
The authors thank Hendrik Bessembinder (the editor), Ruslan Goyenko (the referee), and participants at the 2020 Financial Management Association Annual Meeting. The views expressed herein are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of Richmond or the Federal Reserve System. All errors are our own.
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