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Abstract
Mutual fund managers who adjust portfolio holdings based on analyst coverage and consensus recommendations achieve signi?cantly lower risk-adjusted returns, but perform better than when consensus recommendations are considered alone. In a rational expectations equilibrium setup, an unskilled investor places greater weight on a risky asset’s public signal, given an increase in the asset’s analyst coverage. A new measure of managerial skill based on analyst coverage is formulated and shown to be decreasing in mutual fund alphas.
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