Costly Information Production, Information Intensity, and Mutual Fund Performance

61 Pages Posted: 3 Mar 2017 Last revised: 23 Nov 2018

See all articles by George J. Jiang

George J. Jiang

Washington State University

Ke Shen

Lehigh University - College of Business & Economics

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Tong Yao

University of Iowa - Henry B. Tippie College of Business

Date Written: November 21, 2018

Abstract

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

Suggested Citation

Jiang, George and Shen, Ke and Wermers, Russell R. and Yao, Tong, Costly Information Production, Information Intensity, and Mutual Fund Performance (November 21, 2018). Available at SSRN: https://ssrn.com/abstract=2926769 or http://dx.doi.org/10.2139/ssrn.2926769

George Jiang

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Ke Shen

Lehigh University - College of Business & Economics ( email )

Bethlehem, PA 18015
United States
(610) 758-1084 (Phone)

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

Tong Yao (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

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