Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings

Eric G Falkenstein

Journal of Finance, 1996, vol. 51, issue 1, 111-35

Abstract: This investigation of the cross-section of mutual fund equity holdings for the years 1991 and 1992 shows that mutual funds have a significant preference towards stocks with high visibility and low transaction costs, and are averse to stocks with low idiosyncratic volatility. These findings are relevant to theories concerning investor recognition, a potential agency problem in mutual funds, tests of trend-following and herd behavior by mutual funds, and corporate finance. Copyright 1996 by American Finance Association.

Date: 1996
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