Do actively managed mutual funds exploit stock market mispricing?

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Constructing a proxy for mispricing with 15 well-known stock market anomalies, we examine whether actively managed mutual funds exploit mispricing. We find that, in the aggregate, mutual funds overweight overvalued stocks and underweight undervalued stocks relative to a passive benchmark, and this tendency is explained by the ill-motivated trades of agency-prone fund managers. In addition, we find that mutual funds with the highest weights in undervalued stocks outperform those with the highest weights in overvalued stocks by an annualized three-factor alpha of 2.12% (t = 2.38), implying that slanting portfolios based on our proxy helps mutual funds improve performance.
Publisher
ELSEVIER SCIENCE INC
Issue Date
2020-07
Language
English
Article Type
Article
Citation

NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE, v.53

ISSN
1062-9408
DOI
10.1016/j.najef.2020.101189
URI
http://hdl.handle.net/10203/275490
Appears in Collection
MT-Journal Papers(저널논문)
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