Preferences for Stock Characteristics As Revealed by Mutual Fund Portfolio Holdings

  • Author(s): ERIC G. FALKENSTEIN
  • Published: Apr 30, 2012
  • Pages: 111-135
  • DOI: 10.1111/j.1540-6261.1996.tb05204.x


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.

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