Revealed Expectations and Learning Biases: Evidence from the Mutual Fund Industry
82 Pages Posted: 4 Feb 2019 Last revised: 10 Feb 2020
Date Written: January 31, 2018
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: Suggested Citation