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    Best Ideas
    20 Aug 2020Working Paper Summaries

    Best Ideas

    by Miguel Antón, Randolph B. Cohen, and Christopher Polk
    The “best ideas” in investment managers’ portfolios generate statistically and economically significant risk-adjusted returns over time, and they systematically outperform other positions in the portfolios. Investors can gain substantially if managers choose less-diversified portfolios that tilt more towards their best ideas.
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    Author Abstract

    We find that the stocks in which active mutual fund or hedge fund managers display the most conviction towards ex-ante, their “Best ideas,” outperform the market, as well as the other stocks in those managers’ portfolios, by approximately 2.8 to 4.5 percent per year, depending on the benchmark employed. The vast majority of the other stocks managers hold do not exhibit significant outperformance. Thus, the organization of the money management industry appears to make it optimal for managers to introduce stocks into their portfolio that are not outperformers. We argue that investors would benefit if managers held more concentrated portfolios.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: June 2020
    • HBS Working Paper Number: HBS Working Paper #21-004
    • Faculty Unit(s): Finance
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    Randolph B. Cohen
    Randolph B. Cohen
    Senior Lecturer of Business Administration
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