Costly Information Production, Information Intensity, and Mutual Fund Performance
61 Pages Posted: 3 Mar 2017 Last revised: 23 Sep 2021
Date Written: November 21, 2018
This study examines the concentration of active mutual fund managers' research efforts toward information-intense stocks and the degree to which they are successful in such efforts. Using the contribution of jumps to stock return variance as a proxy for information intensity, we find that both skilled and unskilled fund managers are attracted to high information-intensity stocks. Moreover, performance persistence is only observed among funds investing in high information-intensity stocks. We show that our results are robust to controlling for characteristics of fund stock holdings and measures of fund activeness. Finally, we find a higher flow sensitivity to past performance of funds with higher information intensity. These findings suggest that investing in high information-intensity stocks is an important strategy by fund managers and has significant impact on investor fund selection decisions.
Keywords: information intensity; performance persistence
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