The 'Smart Money' Effect: Retail versus Institutional Mutual Funds
Ben-Gurion University of the Negev
March 12, 2012
Do sophisticated investors exhibit a stronger “smart money” effect than unsophisticated ones? In this paper, I examine whether fund selection ability of institutional mutual fund investors is better than that of retail mutual fund investors. In line with the studies of Gruber (1996), Zheng (1999), and Keswani and Stolin (2008), I find a smart money effect for investors of both institutional and retail mutual funds. Surprisingly, the results suggest that investors of institutional funds, with a higher representation of more sophisticated investors, do not demonstrate a better fund selection ability.
Number of Pages in PDF File: 50
Keywords: smart money effect, mutual funds, institutional investors, retail investors, institutional funds, retail funds, investment decisions
JEL Classification: G19, G23
Date posted: March 15, 2012 ; Last revised: July 24, 2012