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Is Investor Rationality Time Varying? Evidence from the Mutual Fund Industry / Vincent Glode, Burton Hollifield, Marcin Kacperczyk, Shimon Kogan.
- Format:
- Book
- Author/Creator:
- Glode, Vincent.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w15038.
- NBER working paper series no. w15038
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2009.
- Summary:
- We provide new empirical evidence suggesting that the marginal investor in mutual funds behaves differently across market conditions. If the marginal investor allocates capital across mutual funds rationally, then the relative performance of funds should be unpredictable. We find however that relative fund performance is predictable after periods of high market returns but not after periods of low market returns. The asymmetric predictability in performance we document cannot be explained by time-varying differences in transaction costs or style exposures between funds, or by sample selection. Consistent with the hypothesis that the asymmetric predictability in performance may be driven by unsophisticated investors' mistakes when allocating capital, we document that performance predictability is more pronounced for funds that cater to retail investors than for funds that cater to institutional investors.
- Notes:
- Print version record
- June 2009.
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