How Fast Do Investors Learn? Asset Management Investors and Bayesian Learning

48 Pages Posted: 25 Jan 2016 Last revised: 27 Nov 2018

See all articles by Christopher Schwarz

Christopher Schwarz

University of California at Irvine

Zheng Sun

University of California, Irvine - Paul Merage School of Business

Date Written: November 20, 2018

Abstract

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

Schwarz, Christopher and Sun, Zheng, How Fast Do Investors Learn? Asset Management Investors and Bayesian Learning (November 20, 2018). Available at SSRN: https://ssrn.com/abstract=2720524 or http://dx.doi.org/10.2139/ssrn.2720524

Christopher Schwarz (Contact Author)

University of California at Irvine ( email )

Irvine, CA 92697-3125
United States

Zheng Sun

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

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