Investing in the 'New Economy': Mutual Fund Performance and the Nature of the Firm
47 Pages Posted: 5 Aug 2011 Last revised: 23 Aug 2012
Date Written: March 1, 2012
Abstract
Although stock returns of intangibles-intensive firms tend to exceed physical assets-intensive firms, risk-adjusted returns of actively managed mutual funds significantly decrease (increase) with their portfolios’ exposure to intangibles-intensive (physical assets-intensive) firms. Fund managers tend to exhibit skill when they focus on difficult-to-value (e.g. small) firms, except when the firms are intangibles-intensive. In sum, the worst-performing funds are in areas of the market which seem to offer ample opportunities for professional investors due to exacerbated mispricing. The negative impact of investments in intangibles-intensive firms on fund performance appears to be driven by extrapolation bias and decreases with learning from experience.
Keywords: mutual fund performance, intangible assets, physical assets, research and development (R&D), behavioral bias, learning
JEL Classification: G11, G14, G23, O33
Suggested Citation: Suggested Citation
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