Mutual fund preference for pure-play firms

Bradford D. JORDAN, Ang LI, Mark H. LIU

Research output: Journal PublicationsJournal Article (refereed)peer-review

Abstract

We find that actively managed mutual funds have higher ownership in pure-play firms than in conglomerates. The results show that fund managers’ industry expertise explains this preference because investing in pureplays allows the industry expertise to concentrate in one industry and investing in conglomerates dilutes the expertise. The preference is stronger when firms are more affected by industry factors and when fund managers show greater industry expertise. Mutual funds that hold more pure-play firms outperform, show industry and pureplay selectivity, and do not show an effect that scale erodes fund performance. We also discuss how diversification discounts affect our findings.
Original languageEnglish
Article number100719
JournalJournal of Financial Markets
DOIs
Publication statusE-pub ahead of print - 25 Feb 2022

Bibliographical note

Funding Information:
We thank Chris Clifford, George Comer, Bing Han, Russell Jame, Pedro Matos, Kasper Nielsen, Andre de Souza, Aadhaar Verma, and participants at the 2018 MFA meeting in San Antonio, the 2018 EFA meeting in Philadelphia, the 2018 FMA Asia/Pacific doctoral consortium in Hong Kong, the 2018 FMA doctoral consortium in San Diego, and seminar participants at the University of Kentucky for their helpful suggestions and comments. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. Declarations of interest: none. All errors and omissions are our own.

Publisher Copyright:
© 2022 Elsevier B.V.

Keywords

  • Business segments
  • Diversification discount
  • Industry expertise
  • Mutual funds
  • Pure-play firms

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