Where are the Smart Investors? New Evidence of the Smart Money Effect

44 Pages Posted: 25 Jan 2010 Last revised: 23 Mar 2010

See all articles by Hsin-Yi Yu

Hsin-Yi Yu

University of Edinburgh - Organisation Studies; National University of Kaohsiung; University of Edinburgh - Accounting and Finance

Date Written: February 1, 2010

Abstract

Prior research debates focus on whether investors are smart enough to invest in funds that subsequently outperform. This paper documents a robust smart money effect among small fund investors who invest in the top performing funds, even after controlling for the momentum factor argued by Sapp and Tiwari (2004). I further explore the reason for the smart money effect and find that such outperformance comes from the market timing ability of smart investors. Market timing ability distinguishes smart investors from investors who naïvely chase the winners.

Keywords: Smart money effect, Fund cash flow, Fund performance, Timing ability

JEL Classification: G11, G20

Suggested Citation

Yu, Hsin-Yi, Where are the Smart Investors? New Evidence of the Smart Money Effect (February 1, 2010). Available at SSRN: https://ssrn.com/abstract=1541790 or http://dx.doi.org/10.2139/ssrn.1541790

Hsin-Yi Yu (Contact Author)

University of Edinburgh - Organisation Studies ( email )

50 George Square
William Robertson Building
Edinburgh EH8 9JY
UNITED KINGDOM

National University of Kaohsiung ( email )

Kaohsiung, 803
Taiwan

University of Edinburgh - Accounting and Finance ( email )

William Robertson Building
Edinburgh EH8 9JY
United Kingdom

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