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The 'Smart Money' Effect: Retail versus Institutional Mutual Funds

50 Pages Posted: 15 Mar 2012 Last revised: 24 Jul 2012

Galla Salganik-Shoshan

Ben-Gurion University of the Negev

Date Written: 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.

Keywords: smart money effect, mutual funds, institutional investors, retail investors, institutional funds, retail funds, investment decisions

JEL Classification: G19, G23

Suggested Citation

Salganik-Shoshan, Galla, The 'Smart Money' Effect: Retail versus Institutional Mutual Funds (March 12, 2012). Available at SSRN: or

Galla Salganik-Shoshan (Contact Author)

Ben-Gurion University of the Negev ( email )

Beer Sheva

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