Portfolio Concentration and Mutual Fund Performance

45 Pages Posted: 15 Aug 2016 Last revised: 10 Nov 2016

Jon A. Fulkerson

University of Dayton

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: September 1, 2016

Abstract

Mutual fund managers should choose to increase the concentration of their portfolio when they possess information of great enough expected value to offset the risks of increased concentration. Consistent with that idea, we find that fund performance improves after concentration increases. Because the riskiness of increased concentration varies between funds and over time, the expected value of the information required by managers before choosing to increase concentration should also vary. Among other results, we show that the concentration-performance relation is stronger for funds with less institutional ownership and when investor sentiment is low.

Keywords: Mutual fund, alpha, concentration, information, skill

JEL Classification: G20

Suggested Citation

Fulkerson, Jon A. and Riley, Timothy B., Portfolio Concentration and Mutual Fund Performance (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2822440 or http://dx.doi.org/10.2139/ssrn.2822440

Jon A. Fulkerson

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

Timothy Brandon Riley (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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