Investment Companies and Predictable Returns

Sammanfattning: This paper investigates investors' limited attention through Swedish investment companies and their respective underlying portfolios. The results indicate that there is no systematic lag in the stock price of investment companies relative to their underlying portfolios, implying that investors are attentive to the information of the underlying portfolio when valuing the investment company. However, a pattern was identified for the indexed returns of the investment company relative to its underlying portfolio during the observed time period. This finding indicates that there is another type of return predictability that investors can exploit, which we have termed relative return predictability. Exploiting this observed systematic pattern through a long-short trading strategy yielded a notable return.