Mutual Fund Competition and Profiting from the Post Earnings Announcement Drift
University of Texas at Dallas - Naveen Jindal School of Management
Shanghai University of Finance and Economics
University of Iowa - Henry B. Tippie College of Business
University of Rhode Island - College of Business Administration
We examine how competition affects the performance of mutual funds trading on the post earnings announcement drift (PEAD) strategy. Mutual funds aggressively pursuing this strategy on average do not generate significant outperformance. However, some of them manage to encounter low competition and deliver superior performance. These funds tend to hold and trade on stocks with low liquidity and high volatility. Our findings suggest that some funds have skills to profitably implement the PEAD strategy while avoid crowded trades, and that for these low-competition funds, the benefit of reduced competition outweighs the potential costs of trading on illiquid and volatile stocks.
Number of Pages in PDF File: 65
Keywords: mutual funds, competition
Date posted: March 14, 2012 ; Last revised: September 27, 2016
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