A Skew is a Skill: Portfolio Skewness of Mutual Fund Holdings

37 Pages Posted: 27 Aug 2024

See all articles by Jo Drienko

Jo Drienko

Australian National University (ANU); Financial Research Network (FIRN)

Chao Gao

Australian National University, RSFAS

Yifei Liu

Australian National University (ANU)

Multiple version iconThere are 2 versions of this paper

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

Drienko, Jo and Gao, Chao and Liu, Yifei, A Skew is a Skill: Portfolio Skewness of Mutual Fund Holdings (August 07, 2024). Available at SSRN: https://ssrn.com/abstract=4919694 or http://dx.doi.org/10.2139/ssrn.4919694

Jo Drienko (Contact Author)

Australian National University (ANU) ( email )

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Chao Gao

Australian National University, RSFAS ( email )

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Yifei Liu

Australian National University (ANU) ( email )

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