Do Financial Experts Make Better Investment Decisions?
51 Pages Posted: 15 Mar 2012 Last revised: 1 Nov 2013
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Do Financial Experts Make Better Investment Decisions?
Date Written: July 12, 2012
Abstract
We provide direct evidence on the effect of financial expertise on investment outcomes. We analyze private portfolios of mutual fund managers. We find no evidence that financial experts are making better investment decisions than their less financially astute peers: they do not outperform, do not diversify their risks better, and do not exhibit lower behavioral biases. Managers do much better in stocks they share with their mutual funds; however, only about 22% of them have any mutual fund-related positions. Some managers, particularly more experienced ones, seem to be aware of the limitations to their investment skills as they increase their holdings of mutual fund related stocks following bad performance of their portfolio. Our results demonstrate that day-to-day knowledge of finance does not improve investment decisions.
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