Industry Concentration and Mutual Fund Performance

The article presents a study about the relationship between industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 2003. It develops a new measure of industry concentration to quantify the amount of portfolio concentration in several industries. The results of the study show that controlling the risk and style differences using factor-based performance measures lead to a better performance of the most concentrated funds. This suggests that investment ability is more evident among managers with portfolios concentrated in a few industries

Industry Concentration and Mutual Fund Performance

The article presents a study about the relationship between industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 2003. It develops a new measure of industry concentration to quantify the amount of portfolio concentration in several industries. The results of the study show that controlling the risk and style differences using factor-based performance measures lead to a better performance of the most concentrated funds. This suggests that investment ability is more evident among managers with portfolios concentrated in a few industries

Effects of a capital gains tax on asset pricing

I extend and generalize the work of Kruschwitz and Löffler (BuR-Business Research 2(2):171-178, 2009). I find that, with a zero risk-free rate, the implicit price of capital gains tax payments is zero. I provide conditions in stochastic discount factor language when a capital gains tax has no effect on asset prices for the case of a zero risk-free rate. A sufficient condition for price equality with a zero risk-fee rate is that agents consume the same in any state with and without taxes. Equilibria exist that guarantee equal consumptions, and they imply the same portfolio rules that Kruschwitz and Löffler (BuR-Business Research 2(2):171-178, 2009) find for the CAPM. Furthermore, for an exogenous non-zero risk-free rate, I show that exponential utility with multivariate normal payoffs, as well as linear marginal utility leave prices unchanged. Equilibrium prices are independent of capital gains taxes in those cases. However, total wealth of agents is different between the tax and the no-tax economy

Are the risk attitudes of professional investors affected by personal catastrophic experiences?

We adopt a novel empirical approach to show that the risk attitudes of professional investors are affected by their catastrophic experiences—even for catastrophes without any meaningful economic impact on these investors or their portfolio firms. We study the portfolio risk of U.S.‐based mutual funds that invest outside the United States before and after fund managers personally experience severe natural disasters. Using a difference‐in‐differences approach, we compare managers in disaster versus nondisaster counties matched on prior disaster probability and fund characteristics. We find that monthly fund return volatility decreases by roughly 60 basis points in year +1 and the effect disappears by year +3. Systematic risk drives the results. Additional analyses do not support wealth effects (using disasters with no property damage) or managerial agency, skill, and catering explanations