The Revealed Preference of Sophisticated Investors

Jesse Blocher

Vanderbilt University - Finance

Marat Molyboga

Efficient Capital Management, LLC

September 21, 2016

Recent work by Berk and van Binsbergen (2016) has shown that the Capital Asset Pricing Model (CAPM) best models the revealed preferences of any investor who could invest in mutual funds – that is, all investors. This claim seems overly broad since it applies to all asset classes. However, we show that hedge funds’ revealed preferences are also best modeled by the CAPM. Since hedge fund investors are sophisticated and can access all assets classes, our finding supports this broad claim. This choice is rational since we also show that CAPM alpha is correlated with managerial skill and predicts performance better than other multi-factor models.

Number of Pages in PDF File: 46

Keywords: Benchmarks, Capital Asset Pricing Model, Hedge Funds

JEL Classification: G12, G14, G23

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Date posted: September 29, 2016  

Suggested Citation

Blocher, Jesse and Molyboga, Marat, The Revealed Preference of Sophisticated Investors (September 21, 2016). Available at SSRN: https://ssrn.com/abstract=2844903

Contact Information

Jesse Blocher (Contact Author)
Vanderbilt University - Finance ( email )
401 21st Avenue South
Nashville, TN 37203
United States

Marat Molyboga
Efficient Capital Management, LLC ( email )
4355 Weaver Parkway
Warrenville, IL 60555
United States
6306576842 (Phone)
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