Active Technological Similarity and Mutual Fund Performance

We examine whether superior understanding of technological innovation is a source of mutual fund managers’ ability to garner positive abnormal returns. Consistent with our hypothesis, the inter-quintile annual net Carhart alpha spread for mutual funds sorted on changes in the technological similarity of their portfolio holdings is 282 basis points. Moreover, because changes in technological similarity are largely orthogonal to other predictors of mutual fund success (e.g., industry concentration, active share, fund R2, and lag fund alpha), changes in technological similarity can be combined with other measures to help identify the best performing funds.

Keywords: mutual fund performance, technological similarity, corporate innovation, active management

JEL Classification: G10, G14

Suggested Citation: Suggested Citation

McLemore, Ping and Sias, Richard W. and Wan, Chi and Yuksel, H. Zafer, Active Technological Similarity and Mutual Fund Performance (January 4, 2021). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3759414 or http://dx.doi.org/10.2139/ssrn.3759414