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Preferences for Stock Characteristics As Revealed by Mutual Fund Portfolio Holdings



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    • KeyCorp. I thank Phillip Braun, Ian Domowitz, Matt Jackson, Debbie Lucas, Mark Satterthwaite, René Stulz, and an anonymous referee for many helpful comments and suggestions. I am also grateful to seminar participants at the Kellogg Graduate School of Management. This paper draws on my dissertation, completed at Northwestern University in 1994.


This investigation of the cross-section of mutual fund equity holdings for the years 1991 and 1992 shows that mutual funds have a significant preference towards stocks with high visibility and low transaction costs, and are averse to stocks with low idiosyncratic volatility. These findings are relevant to theories concerning investor recognition, a potential agency problem in mutual funds, tests of trend-following and herd behavior by mutual funds, and corporate finance.