The Investment Value of Mutual Fund Portfolio Disclosure

Russell Wermers (), Tong Yao and Jane Zhao
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Tong Yao: University of IA
Jane Zhao: PanAgora Asset Management, Boston, MA

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: This paper shows that publicly disclosed mutual fund portfolio holdings contain valuable information about stock fundamentals and future returns. We develop a model to efficiently aggregate this information across actively-managed funds with differential skills to predict individual stock returns. This stock-level measure, which we call the "generalized-inverse alpha" (GIA), selects portfolios of stocks that exhibit much better performance relative to a "copycat strategy" that simply mimics the stockholdings of funds. We use the GIA model to study the source of fund managers' stock selection ability, and find that some managers have skills in uncovering information from fundamental research about the future earnings of stocks. Notably, the forecasting power of our measures is not subsumed by publicly-available quantitative predictors such as momentum, value, and earnings quality, nor is it subsumed by methods shown in past research to forecast stock returns using fund holdings or trades.

Date: 2010-12
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The investment value of mutual fund portfolio disclosure (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:11-15

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