Do Funds with More CAPM Investors Perform Better? And, If So, Why?

69 Pages Posted: 30 Oct 2019 Last revised: 9 Jan 2023

See all articles by You Zhou

You Zhou

University of Leeds - Division of Accounting and Finance

Peng Li

University of Bath, School of management

Charlie X. Cai

University of Liverpool Management School

Kevin Keasey

University of Leeds - Division of Accounting and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 3, 2023

Abstract

Measuring fund clientele by investors’ revealed usage of different asset pricing models, we show that funds with more CAPM investors perform better, all else equal. This predictability is not because the CAPM-alpha predicts future fund performance but because it reflects investor sophistication. This is consistent with Gârleanu and Pedersen’s (2018) key theoretical prediction that funds with more sophisticated investors should perform better due to the screening and matching effect. We provide further empirical evidence that the CAPM effect predictably varies with traditional fund investor sophistication measures and is stronger in pools of funds with better resources.

Keywords: mutual-fund flows, risk factors, non-risk factors, smart-money effect, CAPM

JEL Classification: G11, G12

Suggested Citation

Zhou, You and Li, Peng and Cai, Charlie Xiaowu and Keasey, Kevin, Do Funds with More CAPM Investors Perform Better? And, If So, Why? (January 3, 2023). Available at SSRN: https://ssrn.com/abstract=2839798 or http://dx.doi.org/10.2139/ssrn.2839798

You Zhou

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

Peng Li

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY

Charlie Xiaowu Cai (Contact Author)

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Kevin Keasey

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)

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