Past Performance is Indicative of Future Beliefs

Risk and Decision Analysis, Forthcoming

NYU Poly Research Paper

12 Pages Posted: 26 Jan 2011 Last revised: 29 Apr 2011

See all articles by Philip Maymin

Philip Maymin

Fairfield University - Charles F. Dolan School of Business; Athletes Unlimited

Gregg S. Fisher

Quent Capital

Date Written: April 11, 2011


The performance of the average investor in an asset class lags the average performance of the asset class itself by an average of one percent per year over the past fifteen years, based on net investor mutual fund cash flows. We present a model in which a representative behavioral investor believes next year’s returns will exactly match last year’s returns and show that this leads to price adjustments on what would otherwise be random walk securities that effectively lower the future return of high performers and raise the future return of poor performers. The average predicted behavioral lag indeed matches the observed lag when asset returns are normally distributed with a mean and standard deviation equivalent to historical fifteen year averages of six percent and eighteen percent, respectively, and when the representative investor increases his allocation by 25 percent more than the return itself, a prediction for which we document empirical support. In other words, investors chase returns and in doing so create the conditions of their own demise.

Keywords: behavioral, trading, mutual funds, momentum, investor returns

JEL Classification: G11, G14

Suggested Citation

Maymin, Philip and Fisher, Gregg S., Past Performance is Indicative of Future Beliefs (April 11, 2011). Risk and Decision Analysis, Forthcoming, NYU Poly Research Paper, Available at SSRN:

Philip Maymin (Contact Author)

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

Athletes Unlimited ( email )

888 7th Avenue
New York, NY 10106
United States

Gregg S. Fisher

Quent Capital ( email )

1120 Avenue of the Americas
4th Floor
NEW YORK, NY 10036
United States
212-796-0707 (Phone)


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