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Is Concentration a Good Idea? Evidence from Active Fund Management

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Abstract

In this paper, we examine whether mutual fund managers in Taiwan produce superior performance through concentrated investment strategy, and find that mutual funds with higher degree of concentration have higher investment performance and lower risk during the period 2001–2009. Moreover, when the degree of industry concentration of fund holdings is higher, there is less impact on stock market performance. However, the premium of the market portfolio has more impact on the performance of funds when there is lower degree of industry concentration. We also find that the stock-picking and market-timing abilities of mutual fund managers result in funds with high degree of industry concentration having more returns and lower risks than the funds with low degree of industry concentration.

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Authors and Affiliations

  1. Department of Finance, National Chung Hsing University, 250 Kuo Kuang Road, Taichung, Taiwan

    Pei-I Chou & Chia-Hao Lee

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  1. Pei-I Chou
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  2. Chia-Hao Lee
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Correspondence to Chia-Hao Lee.

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Chou, PI., Lee, CH. Is Concentration a Good Idea? Evidence from Active Fund Management. Asia-Pac Financ Markets 19, 23–41 (2012). https://doi.org/10.1007/s10690-011-9140-x

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