Against Dumb Money
77 Pages Posted: 16 Aug 2021 Last revised: 19 Aug 2022
Date Written: August 19, 2022
We propose a new measure, against dumb money (ADM), to identify skilled mutual fund managers. ADM evaluates fund investment skills by the extent to which the fund’s investment decisions are opposite to the decisions of dumb money. For each fund, the proposed measures examine the covariance between deviations of its portfolio weights from a benchmark portfolio and the abnormal shareholder number growth rates of underlying stocks in the fund’s investment universe. Our measures reveal strong predictability in the returns of Chinese equity funds and provide information about future fund returns that is not contained in the standard measures.
Keywords: Mutual fund; Retail investors; Exploring noise demand; Mutual fund skill
JEL Classification: G10, G20, G23
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