Product Market Linkages, Manager Quality, and Mutual Fund Performance
forthcoming in the Review of Finance
61 Pages Posted: 7 Jul 2009 Last revised: 10 Sep 2012
Date Written: September 10, 2012
Abstract
Mutual funds typically invest a disproportionately large portion of their portfolio in one industry (main industry). We present a simple theoretical model to demonstrate that better mutual fund managers make larger investments in the important supplier/customer industries related to the main industry. Consistent with our theory, empirical tests on a large sample of mutual funds show that investment in related industries is positively associated with fund performance and plays a more significant role in explaining fund performance than investment in the main industry. Furthermore, the positive relation between main investment and fund performance obtains only when related investment is high.
Keywords: mutual fund, product market
JEL Classification: G23, D24
Suggested Citation: Suggested Citation
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