The Revealed Preference of Sophisticated Investors

Blocher, Jesse; Molyboga, Marat

doi:10.2139/ssrn.2844903

Cited by 6 publications

(8 citation statements)

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“…Several other studies also support the idea that investors place considerable weight on simpler measures of performance (i.e., Del Guercio and Tkac (2008), Elton, Gruber, and Blake (2014),Barber, Huang, and Odean (2016),Berk and van Binsbergen (2016),Blocher and Molyboga (2017), and Agarwal, Green, and Ren (2018)).…”

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confidence: 79%

Benchmark Discrepancies and Mutual Fund Performance Evaluation

Cremers¹,

Fulkerson²,

Riley

2021

J. Financ. Quant. Anal.

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We introduce a new holdings-based procedure to identify whether a mutual fund has a benchmark discrepancy, which we define as a benchmark other than the prospectus benchmark best matching a fund’s investment strategy. We find that funds with a benchmark discrepancy tend to be riskier than their prospectus benchmarks indicate. As a result, the funds on average outperform their prospectus benchmarks, before further risk adjustments, despite underperforming the benchmarks that best match their portfolios.

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confidence: 79%

Benchmark Discrepancies and Mutual Fund Performance Evaluation

Cremers¹,

Fulkerson²,

Riley

2021

J. Financ. Quant. Anal.

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“…Subsequent studies that made attempts to resolve this puzzle also reached a similar conclusion. See for instance, Blocher and Molyboga (2017) and Agarwal et al (2018) who examined the case for hedge fund investors and Dang et al (2019) for investors in bond market. Interestingly, Ben-David et al (2019), in contradiction to the previous studies, concludes that investors do not use any of the asset pricing models while investing in mutual funds.…”

Section: Introductionmentioning

confidence: 99%

Risk factors, uncertainty, and investment decision: evidence from mutual fund flows from India

Nedumparambil

Bhandari

2022

Ind. Econ. Rev.

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Asset pricing theories provide an understanding of the risk factors that determine the price of assets. The identification of risk factors assists investors in seeking out profitable investment opportunities. The difficulty in observing how investors identify such opportunities and how they react to it has largely restricted the literature from determining the factors that matter to an investor. There is a paucity of empirical studies that give insight into the investment decision-making process of an investor. Some of the recent studies that seek to fill this gap have used mutual fund flows to infer which asset pricing model investors use. The fund flows are used as a measure of investors’ response for the identification of a positive net present value investment opportunity. These studies suggest that the Capital Asset Pricing Model (CAPM) is closest to the asset pricing model used by investors in the US market. Taking this literature forward, we enquire whether investors from Indian markets exhibit a similar pattern when making investment decisions. Using the fund flows to actively managed equity schemes, we have investigated the risk factors that matter for mutual fund investors in India for the period from April 2006 to December 2019. We use alternative performance measure and then evaluate the sensitivity of fund flows to each of the performance measures. Our results suggest that investors assess the performance of competing investment opportunities based on naïve measures. Further, though uncertainty has a negative impact on fund flow, the flow–performance relation is not sensitive to the level of uncertainty.

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“…BvB, BHO, Agarwal, Green, and Ren (2018), and Blocher and Molyboga (2017) report that single-factor alpha wins their horse race with samples of mutual funds and hedge funds. BvB and some other papers conclude that these results indicate that the CAPM is the true asset pricing model.…”

Section: Results In Perspectivementioning

confidence: 99%

“…Because of potential asset pricing model implications, BvB's comparisons include multifactor models and several versions of consumption-capital asset pricing model. Agarwal, Green, and Ren (2018) and Blocher and Molyboga (2017) carry out similar tests with hedge funds.…”

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confidence: 99%

What Do Fund Flows Reveal about Asset Pricing Models and Investor Sophistication?

Jegadeesh

Mangipudi

2020

The Review of Financial Studies

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Recent evidence indicates that market model alphas are stronger predictors of mutual fund flows than alphas with other models. Some recent papers have interpreted this evidence to mean that CAPM is the best asset pricing model, but some others have interpreted it as evidence against investor sophistication. We evaluate the merits of these mutually exclusive interpretations. We show that no tenable inference about the validity of any asset pricing model can be drawn from this evidence. Rejecting the investor sophistication hypothesis is tenable, but the appropriate benchmark to judge sophistication is different from that used in this literature.

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The Revealed Preference of Sophisticated Investors

Cited by 6 publications

References 0 publications

Benchmark Discrepancies and Mutual Fund Performance Evaluation

Benchmark Discrepancies and Mutual Fund Performance Evaluation

Risk factors, uncertainty, and investment decision: evidence from mutual fund flows from India

What Do Fund Flows Reveal about Asset Pricing Models and Investor Sophistication?

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