The Smart Money Effect Revisited: Is There a 'Smart Money' Effect During Recessions?

40 Pages Posted: 18 Aug 2017

See all articles by Yimeng Chen

Yimeng Chen

University of Adelaide

Tariq H. Haque

University of Adelaide; Financial Research Network (FIRN)

Shan Li

Xiamen University - Institute for Financial and Accounting Studies

Date Written: August 18, 2017

Abstract

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

Chen, Yimeng and Haque, Tariq H. and Li, Shan, The Smart Money Effect Revisited: Is There a 'Smart Money' Effect During Recessions? (August 18, 2017). 30th Australasian Finance and Banking Conference 2017. Available at SSRN: https://ssrn.com/abstract=3021552 or http://dx.doi.org/10.2139/ssrn.3021552

Yimeng Chen

University of Adelaide ( email )

No 233 North Terrace, School of Commerce
Adelaide, South Australia 5005
Australia

Tariq H. Haque (Contact Author)

University of Adelaide ( email )

10 Pulteney St, Adelaide Busines School
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Shan Li

Xiamen University - Institute for Financial and Accounting Studies ( email )

Xiamen, Fujian 361005
China

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