Skip to main content
Article thumbnail
Location of Repository

Organizational diseconomies in the mutual fund industry

By Fabian Garavito

Abstract

I document how the organizational form of a mutual fund aects its investment strategies. I show that centralized funds tilt their portfolios to hard information com- panies whereas decentralized funds tilt their portfolios to soft information companies. I also show that the investments of decentralized (centralized) mutual funds in soft (hard) information companies outperform those of centralized (decentralized) funds. Moreover, decentralized funds show ability to forecast soft information companies' future returns and a disability at forecasting hard information companies' future re- turns. On the other hand, centralized funds do not seem to be able to forecast the returns of hard information companies, but they show disability at forecasting hard information companies' future returns. The results corroborate the main predictions of Stein (2002). The results also shed light on the increase in demand for large stocks and the positive relationship between performance of portfolio concentration documented in the literature

Topics: HG Finance, HB Economic Theory
Publisher: Financial Markets Group, London School of Economics and Political Science
Year: 2009
OAI identifier: oai:eprints.lse.ac.uk:29302
Provided by: LSE Research Online

Suggested articles


To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.