The Smart Money Effect Revisited: Is There a 'Smart Money' Effect During Recessions?
40 Pages Posted: 18 Aug 2017
Date Written: August 18, 2017
Moskowitz (2000) and Glode (2011), among others, document that US mutual funds achieve higher alphas in recessions compared to non-recessions. Kacpercyk et al (2014) provide a different result that those US funds that perform well in recessions also perform well in non-recessions. We show that the smart money algorithm can be used to identify these funds, particularly small funds, and that the expenses they charge are not too high. This simple algorithm, based on past flows is consistent with Berk and Green (2004) and Berk and Binsbergen (2015) in that flows are indicative of managerial skill and that in equilibrium, after-expense alphas should be equal to zero.
Keywords: Smart Money Effect, Recessions, Non-Recessions, Mutual Funds, Alpha
JEL Classification: E44, G20
Suggested Citation: Suggested Citation