Our article "The Economics of Security Analysis" (Hou, Mo, Xue, and Zhang 2022) has been accepted at Management Science.
An intriguing finding is that top-20 (about 1%) active, equity funds outperform by holding high expected growth, low investment stocks at the expense of other funds who hold the opposite sides of the trades in equilibrium. In particular, top-20 active fund portfolios have significantly positive expected growth and positive (albeit insignificant) investment factor loadings, whereas aggregate active fund portfolios have significantly negative loadings on both factors.
Please see the latest draft, the internet appendix, slides, as well as video presentation below:
An aspiring economic philosopher