Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/228693
Authors: 
Hendriock, Mario
Year of Publication: 
2020
Series/Report no.: 
CFR Working Paper No. 20-11
Abstract: 
This study provides evidence for a positive association between mutual fund holdings'implied cost of capital (ICC) and future performance. Consistent with large transactioncosts of ICC-based investments impeding their exploitation and employing a ICC-basedstrategy reflecting skill, family-level trading efficiency and manager-level SAT scorepositively correlate with fund-level ICC. A negative association between ICC and mid-year risk shifting corroborates the notion of fund managers decisively choosing andrelying on high-ICC strategies. Institutional investors able to identify funds with highICC direct their investments accordingly, whereas flows of retail funds are unaffected,consistent with limited investor attention and financial literacy.
Subjects: 
implied cost of capital
mutual funds
portfolio choice
financial forecasting
JEL: 
G11
G14
G17
G23
G31
M41
Document Type: 
Working Paper

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