Abstract

http://ssrn.com/abstract=2020662
 
 

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Mutual Fund Competition and Profiting from the Post Earnings Announcement Drift


Ashiq Ali


University of Texas at Dallas - Naveen Jindal School of Management

Xuanjuan Chen


Shanghai University of Finance and Economics

Tong Yao


University of Iowa - Henry B. Tippie College of Business

Tong Yu


University of Rhode Island - College of Business Administration

May 2014


Abstract:     
We examine how competition affects the performance of active equity mutual funds aggressively pursuing the post earnings announcement drift (PEAD). We find that competition significantly erodes the performance of these funds. Amid increased competition, there is also increased diversity in the sophistication of implementing the strategy by funds. A group of funds aggressively pursuing the strategy successfully avoid competition and generate superior performance. The identities of these low-competition funds are persistent. Moreover, these funds tend to hold and trade on stocks with high trading costs and high idiosyncratic volatility, presumably to avoid crowding. Our findings suggest that for these low-competition funds, the benefit of avoiding competition outweighs the downside of incurring high trading costs.

Number of Pages in PDF File: 49

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Date posted: March 14, 2012 ; Last revised: May 3, 2014

Suggested Citation

Ali, Ashiq and Chen, Xuanjuan and Yao, Tong and Yu, Tong, Mutual Fund Competition and Profiting from the Post Earnings Announcement Drift (May 2014). Available at SSRN: http://ssrn.com/abstract=2020662 or http://dx.doi.org/10.2139/ssrn.2020662

Contact Information

Ashiq Ali
University of Texas at Dallas - Naveen Jindal School of Management ( email )
800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)
HOME PAGE: http://www.utdallas.edu/~axa042200/
Xuanjuan Chen
Shanghai University of Finance and Economics ( email )
777 Guoding Road
Shanghai, Shanghai 200433
China
Tong Yao (Contact Author)
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
Tong Yu
University of Rhode Island - College of Business Administration ( email )
Kingston, RI 02881
United States
(401) 874-7415 (Phone)
(401) 874-4312 (Fax)
HOME PAGE: http://www.cba.uri.edu/tong
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