Efficient Market Managers
Quarterly Journal of Finance, forthcoming.
47 Pages Posted: 30 Nov 2020 Last revised: 23 Jan 2021
Date Written: January 22, 2021
We examine the effect of the Efficient Market Hypothesis (EMH) on the investment behavior of mutual fund managers. We show that managers who are more likely to be exposed to the ideas of EMH throughout their higher education are more “passive” than their unexposed peers: they are more likely to manage index funds, and when managing active funds, they hold portfolios with larger numbers of stocks and deviate less from their investment benchmarks. Exposed managers, however, take more systematic risks. Although academic exposure to the EMH does not result in better performance, it helps professional investors generate capital inflows.
Keywords: Economic theory, active investing, efficient market hypothesis, mutual funds
JEL Classification: B31, D01, G23, G40
Suggested Citation: Suggested Citation