When Mutual Fund Managers Write Confidently

83 Pages Posted: 16 Jan 2020

See all articles by Qianzhou Du

Qianzhou Du

Nanjing University

Yawen Jiao

University of California, Riverside

Pengfei Ye

Virginia Tech

Weiguo Fan

University of Iowa

Date Written: December 23, 2019


This paper studies the information content of a subtle writing style, the expression of confidence. We use unsupervised machine learning to generate new lexicons for three aspects of a writer’s level of confidence in expressing opinions: certainty, intensity of expression, and emotional overstatement. Using them to capture mutual fund managers’ confidence in letters to shareholders, we show confidence contains important information about skill: underperforming managers writing with strong certainty significantly outperform other underperforming managers in the next six months, whereas top performing managers writing with strong intensity or emotional overstatement underperform. Further analyses reveal our confidence measures are informationally distinct from the human-based confidence measure and tone. Analyses of investors’ capital flows show they are largely incapable of detecting the information embedded in textual confidence. Our findings suggest that writing styles contain import forward-looking information.

Keywords: Textual Analysis, Confidence, Mutual Funds, Skill

JEL Classification: G23, G41

Suggested Citation

Du, Qianzhou and Jiao, Yawen and Ye, Pengfei and Fan, Weiguo, When Mutual Fund Managers Write Confidently (December 23, 2019). Available at SSRN: https://ssrn.com/abstract=3513288 or http://dx.doi.org/10.2139/ssrn.3513288

Qianzhou Du

Nanjing University ( email )

Nanjing, Jiangsu 210093

Yawen Jiao (Contact Author)

University of California, Riverside ( email )

Riverside, CA 92521
United States

Pengfei Ye

Virginia Tech ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

Weiguo Fan

University of Iowa ( email )

S262 JPP Business Building
Iowa City, IA 52242-1097
United States

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