On the Implications of Mutual Fund Managers’ Reliance on Categories

60 Pages Posted: 19 Jul 2013 Last revised: 8 Aug 2016

See all articles by Swasti Gupta-Mukherjee

Swasti Gupta-Mukherjee

Loyola University Chicago - Department of Finance

Date Written: August 1, 2016

Abstract

This study shows that mutual fund managers vary in their reliance on category-level information, relative to firm-specific information about assets. Moreover, fund performance decreases with managers’ propensity to rely on categories. Fund managers display less skill in picking stocks which are more coarsely categorized, especially when the managers rely more on categories. Fund managers’ reliance on categories increases with the demands on their attention, such as when market uncertainty, valuation uncertainty of assets, and portfolio diversification are high. Taken together, the evidence is consistent with fund managers’ limited attention driving their reliance on coarse categories and detrimentally affecting investment outcomes.

Keywords: mutual funds, portfolio management, categorization, limited attention, behavioral finance

JEL Classification: G02, G11, G14, G23

Suggested Citation

Gupta-Mukherjee, Swasti, On the Implications of Mutual Fund Managers’ Reliance on Categories (August 1, 2016). Available at SSRN: https://ssrn.com/abstract=2295711 or http://dx.doi.org/10.2139/ssrn.2295711

Swasti Gupta-Mukherjee (Contact Author)

Loyola University Chicago - Department of Finance ( email )

820 North Michigan Avenue
Chicago, IL 60611
United States

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