Squandering Home Field Advantage? Financial Institutions’ Investing in Their Own Industries

Abstract

In the extensive debate about investment professionals’ ability to add value, there has been scant evidence on the role played by industry expertise. To shed light on this issue, we study own industry investing. Specifically, we analyse how well individual mutual funds as well as mutual fund companies, banks, and insurance companies invest in the shares of listed companies in the mutual fund, banking, and insurance industries, respectively. We find little evidence that such inherent industry knowledge enhances these institutions’ ability either to time the investment in their industry as a whole or to select individual stocks within it.

Keywords: investment management, mutual funds

JEL Classification: G14, G23