How Fast Do Investors Learn? Asset Management Investors and Bayesian Learning
48 Pages Posted: 25 Jan 2016 Last revised: 27 Nov 2018
Date Written: November 20, 2018
We study how fast investors learn about manager skills by examining the speed at which their disagreement converges. Using a novel measure of disagreement, we find that hedge fund investors learn as fast as suggested by Bayes’ rule. However, we also find mutual fund investors learn much more slowly than Bayes’ rule. Mutual fund investors’ slow learning is not caused by investors potentially paying attention to different performance measures, institutional frictions such as loads, or lack of sophistication, but is likely due to a low payoff from learning. Our results suggest learning speed depends on the motivation of financial participants.
Keywords: mutual funds, hedge funds, learning, bayes rule, bayesian, asset management
JEL Classification: G11, G2
Suggested Citation: Suggested Citation