Abstract

http://ssrn.com/abstract=963050
 
 

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Inexperienced Investors and Bubbles


Stefan Nagel


University of Michigan, Stephen M. Ross School of Business; University of Michigan Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research

Robin M. Greenwood


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

June 9, 2008

AFA 2008 New Orleans Meetings Paper

Abstract:     
We use mutual fund manager data from the technology bubble to examine the hypothesis that inexperienced investors play a role in the formation of asset price bubbles. Using age as a proxy for managers' investment experience, we find that around the peak of the technology bubble, mutual funds run by younger managers are more heavily invested in technology stocks, relative to their style benchmarks, than their older colleagues. Furthermore, young managers, but not old managers, exhibit trend-chasing behavior in their technology stock investments. As a result, young managers increase their technology holdings during the run-up, and decrease them during the downturn. Both results are in line with the behavior of inexperienced investors in experimental asset markets. The economic significance of young managers' actions is amplified by large inflows into their funds prior to the peak in technology stock prices..

Number of Pages in PDF File: 45

Keywords: Mutual Funds, Behavioral Finance, Experience, Learning, Asset Pricing, Stock Price Bubble

JEL Classification: G10, G11, G23

working papers series





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Date posted: February 15, 2007 ; Last revised: January 22, 2009

Suggested Citation

Nagel, Stefan and Greenwood, Robin M., Inexperienced Investors and Bubbles (June 9, 2008). AFA 2008 New Orleans Meetings Paper. Available at SSRN: http://ssrn.com/abstract=963050 or http://dx.doi.org/10.2139/ssrn.963050

Contact Information

Stefan Nagel
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
University of Michigan Department of Economics
Lorch Hall
Ann Arbor, MI 48109
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Robin M. Greenwood (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6979 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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