Dispersion in beliefs among active mutual funds and the cross-section of stock returns

Hao Jiang, Z Sun

Research output: Contribution to journalArticleAcademicpeer-review

25 Citations (Scopus)

Abstract

We propose a measure of dispersion in fund managers? beliefs about future stock returns based on their active holdings, i.e., deviations from benchmarks. We find that both the level of and the change in dispersion positively predict subsequent stock returns on a risk-adjusted basis. This effect is particularly pronounced among stocks with high information asymmetry and binding short-sale constraints. These results suggest that a subgroup of informed managers drives up the dispersion in active holdings when they place large bets after receiving positive private information. Binding short-sale constraints, however, prevent them from fully using their negative private information, leading to low dispersion in active holdings.
Original languageEnglish
Pages (from-to)341-365
Number of pages25
JournalJournal of Financial Economics
Volume114
Issue number2
DOIs
Publication statusPublished - 2014

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