Do Financial Experts Make Better Investment Decisions?

51 Pages Posted: 15 Mar 2012 Last revised: 1 Nov 2013

See all articles by Andriy Bodnaruk

Andriy Bodnaruk

University of Illinois at Chicago

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 12, 2012

Abstract

We provide direct evidence on the effect of financial expertise on investment outcomes. We analyze private portfolios of mutual fund managers. We find no evidence that financial experts are making better investment decisions than their less financially astute peers: they do not outperform, do not diversify their risks better, and do not exhibit lower behavioral biases. Managers do much better in stocks they share with their mutual funds; however, only about 22% of them have any mutual fund-related positions. Some managers, particularly more experienced ones, seem to be aware of the limitations to their investment skills as they increase their holdings of mutual fund related stocks following bad performance of their portfolio. Our results demonstrate that day-to-day knowledge of finance does not improve investment decisions.

Suggested Citation

Bodnaruk, Andriy and Simonov, Andrei, Do Financial Experts Make Better Investment Decisions? (July 12, 2012). Available at SSRN: https://ssrn.com/abstract=2021501 or http://dx.doi.org/10.2139/ssrn.2021501

Andriy Bodnaruk

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Andrei Simonov (Contact Author)

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.andreisimonov.com

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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