We propose a measure of dispersion in fund managers' beliefs about future stock returns based on their active holdings, i.e., deviations from benchmarks. We find that both the level of and the change in dispersion positively predict subsequent stock returns on a riskadjusted basis. This effect is particularly pronounced among stocks with high information asymmetry and binding short-sale constraints. These results suggest that a subgroup of informed managers drives up the dispersion in active holdings when they place large bets after receiving positive private information. Binding short-sale constraints, however, prevent them from fully using their negative private information, leading to low dispersion in active holdings.

Asymmetric information, Dispersion in beliefs, Mutual funds, Private information, Short-sale constraints
dx.doi.org/10.1016/j.jfineco.2014.06.003, hdl.handle.net/1765/90990
ERIM Top-Core Articles
Journal of Financial Economics
Erasmus University Rotterdam

Jiang, H, & Sun, Z. (2014). Dispersion in beliefs among active mutual funds and the cross-section of stock returns. Journal of Financial Economics, 114(2), 341–365. doi:10.1016/j.jfineco.2014.06.003