Mutual Fund Bets on Market Power

64 Pages Posted: 21 Sep 2016 Last revised: 10 Feb 2020

See all articles by Stefan Jaspersen

Stefan Jaspersen

University of Cologne - Centre for Financial Research (CFR); University of Cologne - Department of Finance

Date Written: January 31, 2020

Abstract

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

Jaspersen, Stefan, Mutual Fund Bets on Market Power (January 31, 2020). Available at SSRN: https://ssrn.com/abstract=2840465 or http://dx.doi.org/10.2139/ssrn.2840465

Stefan Jaspersen (Contact Author)

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

University of Cologne - Department of Finance ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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