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Organizational diseconomies in the mutual fund industry

Garavito, Fabian (2009) Organizational diseconomies in the mutual fund industry. Discussion paper, 638. Financial Markets Group, London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2009 The author
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 638
Date Deposited: 09 Sep 2010 13:35
URL: http://eprints.lse.ac.uk/29302/

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