Mutual Fund Bets on Market Power
64 Pages Posted: 21 Sep 2016 Last revised: 10 Feb 2020
Date Written: January 31, 2020
Processing qualitative information about a firm's product market competition matters for professional investors. Consistent with a superior understanding of a firm's market power, fund managers who overweight companies with the fewest competitors (monopolies) outperform their peers. An exogenous shock to a firm's competitive position around the 9/11 terrorist attacks supports this finding. Managers who place larger bets on monopolies pursue more long-term investment strategies, select superior innovators, and more actively avoid competition within their portfolio. These findings suggest that skilled managers exploit hard-to- process information about a firm's competitive environment when picking stocks.
Keywords: Mutual fund performance, Managerial skill, Information production, Qualitative information, Product market competition
JEL Classification: G11, G12, G14, G23, L11
Suggested Citation: Suggested Citation