Do Funds with More CAPM Investors Perform Better?

131 Pages Posted: 17 Oct 2023

See all articles by You Zhou

You Zhou

University of Leeds - Division of Accounting and Finance

Peng Li

University of Bath, School of management

Charlie X. Cai

University of Liverpool Management School

Kevin Keasey

University of Leeds - Division of Accounting and Finance

Abstract

Utilizing Shapley decomposition we provide a clear ranking of fund flow determinants, including performance and non-performance attributes. This allows us to reveal investor sophistication by linking specific flow drivers to future returns. Sophisticated investors primarily focus on CAPM-alpha but do not soly rely on it. Funds with higher R-squared values for CAPM-alpha consistently outperform in both short and long terms. This holds true irrespective of whether CAPM-alpha is employed in a momentum or contrarian strategy for directing fund flows. Our findings emphasize the need to consider investor heterogeneity and private information in benchmark usage studies.

Keywords: mutual-fund flows, risk factors, non-risk factors, smart-money effect, CAPM

Suggested Citation

Zhou, You and Li, Peng and Cai, Charlie Xiaowu and Keasey, Kevin, Do Funds with More CAPM Investors Perform Better?. Available at SSRN: https://ssrn.com/abstract=4605207 or http://dx.doi.org/10.2139/ssrn.4605207

You Zhou

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

Peng Li

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY

Charlie Xiaowu Cai (Contact Author)

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Kevin Keasey

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)

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