Journal of Financial and Quantitative Analysis Vol. 57 No. 5 2022

Active Technological Similarity and Mutual Fund Performance

Ping McLemore¹; Richard W. Sias²; Chi Wan^3,4; H. Zafer Yüksel^5,6

¹ Federal Reserve Bank of Richmond · ² University of Arizona · ³ Boston College · ⁴ University of Massachusetts Boston · ⁵ University of Rhode Island · ⁶ Rhode Island College

Abstract

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 (TS) of their portfolio holdings is 282 basis points. Moreover, because changes in TS are largely orthogonal to other predictors of mutual fund success (e.g., industry concentration, active share, fund R 2 , and lag fund alpha), changes in TS can be combined with other measures to help identify the best performing funds.

DOI

10.1017/s0022109021000685

Volume

57

Issue

5

Pages

1862-1884

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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