How to select Stock based on mutual fund holdings.

May 26, 2009

The performance of the stocks that are most heavily weighted in mutual funds versus the stocks that are most lightly weighted.

Whether individual investors should consider the weightings mutual fund managers place on the stocks held in their funds when making stock selection decisions. Specifically, we investigate the relative performance of the most heavily weighted stocks in a sample of mutual funds versus the most lightly weighted stocks from the same sample of funds. If mutual fund managers are superior stock pickers, individual investors might be able to earn excess returns by following the implicit stock selections of these professional investors.

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