Dispersion in beliefs among active mutual funds and the cross-section of stock returns

Hao Jiang and Zheng Sun

Journal of Financial Economics, 2014, vol. 114, issue 2, 341-365

Abstract: We propose a measure of dispersion in fund managers׳ beliefs about future stock returns based on their active holdings, i.e., deviations from benchmarks. We find that both the level of and the change in dispersion positively predict subsequent stock returns on a risk-adjusted basis. This effect is particularly pronounced among stocks with high information asymmetry and binding short-sale constraints. These results suggest that a subgroup of informed managers drives up the dispersion in active holdings when they place large bets after receiving positive private information. Binding short-sale constraints, however, prevent them from fully using their negative private information, leading to low dispersion in active holdings.

Keywords: Mutual funds; Private information; Dispersion in beliefs; Short-sale constraints; Asymmetric information (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:114:y:2014:i:2:p:341-365

DOI: 10.1016/j.jfineco.2014.06.003

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