Title: Costly Information Production, Information Intensity, and Mutual Fund Performance

Name: Tong Yao

Abstract: This study examines the concentration of active mutual fund managers' research efforts toward information-intense stocks and the degree to which they are successful in such efforts. We show that funds that hold stocks with high information intensity exhibit large performance dispersion, indicating that both skilled and unskilled fund managers are attracted to such stocks. Moreover, the performance of these funds is predictable by fund skill proxies such as past fund alphas, and the well-known phenomenon of performance persistence is only observed among funds with high information intensity. The effect of fund information intensity on performance persistence is robust to the control of characteristics of fund holdings such as market cap, illiquidity, and return volatility, and is different from the effect of existing measures of fund activeness. Finally, information intensity increases fund flow sensitivity to past performance. These findings suggest that, with costly information production, information intensity is an important dimension of active investment decisions by fund managers and an important dimension of fund selection decisions by investors.