Adjusting to the Information Environment: News Tangibility and Mutual Fund Performance

We study the relation between mutual funds' performance and shocks to the public information environment of their investments. For each stock, we distinguish between quantitative, or tangible, news (expressed with numeric characters) and qualitative news (expressed as verbal content). We find that funds that trade more actively in response to changes in the stocks' information tangibility earn higher risk-adjusted returns. Funds that are particularly sensitive to such fluctuations have smaller managerial teams and employ managers who are more focused. Overall, our evidence suggests that signals associated with changes in the type of public information constitute a channel of value creation in asset management.