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Time-Varying Predictability in Mutual Fund ReturnsVincent GlodeUniversity of Pennsylvania - Finance Department; University of Pennsylvania - The Wharton School Burton HollifieldCarnegie Mellon University - David A. Tepper School of Business Marcin T. KacperczykNew York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance Shimon KoganUniversity of Texas at Austin January 13, 2012 Abstract: We provide novel evidence that mutual fund returns are predictable after periods of high market returns but not after periods of low market returns. The asymmetric conditional predictability in relative performance cannot be fully explained by time-varying differences in transaction costs, in style exposures, or in survival probabilities of funds. Performance predictability is more pronounced for funds catering to retail investors than for funds catering to institutional investors, suggesting that unsophisticated investors make systematic mistakes in their capital allocation decisions.
Number of Pages in PDF File: 43 Keywords: Mutual Funds, Flows, Investor Rationality, Market Conditions JEL Classification: G23, G11, G14 working papers seriesDate posted: March 21, 2009 ; Last revised: January 14, 2012Suggested CitationContact Information
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