Best Ideas

50 Pages Posted: 23 Mar 2009 Last revised: 21 Apr 2021

See all articles by Miguel Anton

Miguel Anton

University of Navarra, IESE Business School

Randolph B. Cohen

Harvard Business School - Finance Unit

Christopher Polk

London School of Economics

Date Written: April 21, 2021

Abstract

We find that the stocks in which active mutual fund or hedge fund managers display the most conviction towards ex-ante, their “Best ideas,” outperform the market, as well as the other stocks in those managers' portfolios, by approximately 2.8 to 4.5 percent per year, depending on the benchmark employed. The vast majority of the other stocks managers hold do not exhibit significant outperformance. Thus, the organization of the money management industry appears to make it optimal for managers to introduce stocks into their portfolio that are not outperformers. We argue that investors would benefit if managers held more concentrated portfolios.

Keywords: mutual funds, managerial skill, market efficiency

JEL Classification: G11, G23

Suggested Citation

Anton, Miguel and Cohen, Randolph B. and Polk, Christopher, Best Ideas (April 21, 2021). Available at SSRN: https://ssrn.com/abstract=1364827 or http://dx.doi.org/10.2139/ssrn.1364827

Miguel Anton

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Randolph B. Cohen

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6674 (Phone)
617-496-6592 (Fax)

Christopher Polk (Contact Author)

London School of Economics ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/polk/

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