Investor sentiment and mutual fund stock picking

Timothy K. Chue and G. Mujtaba Mian

Applied Economics Letters, 2022, vol. 29, issue 17, 1620-1625

Abstract: The active share of mutual funds drops significantly when investor sentiment is high, indicating that fund managers reduce their active stock selection and stay closer to their benchmarks during such periods. Our evidence is consistent with fund managers being sentiment-prone – challenging the conventional view that it is only the preponderance of retail investors during high sentiment periods that allows sentiment to influence asset prices.

Date: 2022
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DOI: 10.1080/13504851.2021.1951440

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