Mutual funds and stock fundamentals

Qiyuan Peng (), Sheri Tice () and Ling Zhou ()
Additional contact information
Qiyuan Peng: University of Dayton
Sheri Tice: Tulane University
Ling Zhou: University of New Mexico

Review of Quantitative Finance and Accounting, 2023, vol. 60, issue 4, No 2, 1329-1361

Abstract: Abstract This paper studies abnormal returns to mutual funds from using a firm fundamental trading strategy. We find that the abnormal returns and the Sharpe Ratio are higher for actively managed mutual funds holding fundamentally strong stocks. These results are driven by the lower risk of stocks with strong fundamentals rather than higher returns. Compared to benchmark index funds, actively managed mutual funds do not slant their portfolios towards fundamentally strong stocks. The lack of trading on firm fundamentals appears to be related to manager incentives as fund inflows are uncorrelated with changes in the fundamentals of their holding stocks.

Keywords: Financial statement analysis; Firm fundamentals; Stock market anomalies; Mutual funds; Mutual fund manager incentives (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11156-023-01131-w

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