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Do Financial Experts Make Better Investment Decisions?

48 Pages Posted: 9 Oct 2014  

Andriy Bodnaruk

University of Illinois at Chicago

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Gaidar Institute for Economic Policy; Centre for Economic Policy Research (CEPR); SITE

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Date Written: October 7, 2014

Abstract

We provide direct evidence on the effect of financial expertise on investment outcomes by analyzing private portfolios of mutual fund managers. We find no evidence that financial experts make better investment decisions than peers: they do not outperform, do not diversify their risks better, and do not exhibit lower behavioral biases. Managers do much better in stocks for which they have an information advantage over other investors, i.e., stocks that are also held by their mutual funds. More experienced managers seem to be aware of the limitations to their investment skills as they increase their holdings of mutual fund-related stocks following poor performance of their portfolios. Our results suggest that there are limits to the value added by financial expertise.

Keywords: individual investors, investor sophistication, financial expertise, mutual fund managers

JEL Classification: G02, G11, G23

Suggested Citation

Bodnaruk, Andriy and Simonov, Andrei, Do Financial Experts Make Better Investment Decisions? (October 7, 2014). Journal of Financial Intermediation, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2506988

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

Gaidar Institute for Economic Policy ( email )

3-5 Gazetny Lane
Moscow, 125009
Russia

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

SITE ( email )

P.O. Box 6501
S-113 83 Stockholm, 11383
Sweden

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