On the Concentration of Mutual Fund Portfolio Holdings - Skills or Overconfidence?
نویسندگان
چکیده
This paper tests the alternative hypotheses of investment selection skills versus overconfidence of fund managers among equity mutual funds in Taiwan. We find a positive relation between fund holdings’ concentration level and risk-adjusted fund performance in the bull market, but a negative relation in the bear markets. The time varying concentration-performance relation is not driven by the fund size. The finding implies that fund managers have superior investment selection skills when the market is less volatile, but they exhibit overconfidence when the market is in turmoil. Investment advice that follows from these findings are that mutual fund investors should choose concentrated funds in bull markets, and shift their investment to more broadly diversified funds in bear markets.
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