Revealed Expectations and Learning Biases: Evidence from the Mutual Fund Industry

82 Pages Posted: 4 Feb 2019 Last revised: 10 Feb 2020

See all articles by Francesco Nicolai

Francesco Nicolai

BI Norwegian Business School

Simona Risteska

London School of Economics & Political Science, Department of Finance, Students

Date Written: January 31, 2018

Abstract

By inverting the optimal portfolios of mutual fund managers in a fairly general setting, which allows us to partial out the effect of risk aversion and hedging demands, we provide an estimate of perceived expected excess returns and show that they are significantly affected by experienced returns. The effect of past returns is non-monotone: we provide reduced-form and structural evidence of managers displaying recency and primacy bias. Finally, we estimate an average coefficient of relative risk aversion close to unity.

Keywords: behavioral finance, mutual funds, asset pricing, bias, learning, expected returns

JEL Classification: D9, G11, G23, G41

Suggested Citation

Nicolai, Francesco and Risteska, Simona, Revealed Expectations and Learning Biases: Evidence from the Mutual Fund Industry (January 31, 2018). Available at SSRN: https://ssrn.com/abstract=3301279 or http://dx.doi.org/10.2139/ssrn.3301279

Francesco Nicolai (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Simona Risteska

London School of Economics & Political Science, Department of Finance, Students ( email )

London
Great Britain

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