A Skew is a Skill: Portfolio Skewness of Mutual Fund Holdings
37 Pages Posted: 27 Aug 2024
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A Skew is a Skill: Portfolio Skewness of Mutual Fund Holdings
A Skew is a Skill: Portfolio Skewness of Mutual Fund Holdings
Date Written: August 07, 2024
Abstract
The return cross-section of a mutual fund’s portfolio holdings is positively skewed on average. At the fund level, portfolio skewness varies substantially across funds yet is highly persistent over time. We show that actively managed mutual funds with high portfolio skewness outperform funds with low portfolio skewness by 2.88% ($7.35 million) on an annualized basis. This association becomes stronger amid more investment opportunities in the market. Further stock-level analyses reveal that shares added or tilted to by high skewness funds relative to low skewness funds significantly outperform their counterparts, pointing to stock selection skill as an explanation for both the portfolio skewness and its predictability of fund performance.
Keywords: Mutual funds, Fund manager skill, Portfolio skewness
JEL Classification: G11, G23
Suggested Citation: Suggested Citation