Time-Varying Predictability in Mutual Fund Returns
University of Pennsylvania - The Wharton School
Carnegie Mellon University - David A. Tepper School of Business
Marcin T. Kacperczyk
Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)
Interdisciplinary Center (IDC) Herzliyah - Arison School of Business; University of Texas at Austin - Red McCombs School of Business
January 13, 2012
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
Date posted: March 21, 2009 ; Last revised: January 14, 2012
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